Preamble

The House met at half-past
Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

NORTH WEST WATER AUTHORITY BILL

[Lords]

(By Order.)

Order for Third reading read.

To be read the Third time upon Tuesday next.

MERSEYSIDE PASSENGER TRANSPORT BILL

(By Order)

Order read for resuming adjourned debate on Question [11th July], That the Bill, as amended, he now considered.

Debate to be resumed upon Tuesday next.

UNIVERSITY OF LONDON BILL [Lords]

(By Order)

Order for Second reading read.

To be read a Second time upon Thursday next.?

GREATER LONDON COUNCIL (GENERAL POWERS) BILL

Ordered,
That the Promoters of the Greater London Council (General Powers) Bill shall have leave to suspend any further proceedings thereon in order to proceed with that Bill, if they think fit, in the next Session of Parliament, provided that the Agents for the Bill give notice to the Clerks in the Private Bill Office of their intention to suspend further proceedings not later than Five o'clock on the day before the close of the present Session and that all Fees due on the Bill up to that date be paid.

Ordered,
That if the Bill is presented in the next Session, the Agents for the Bill shall deposit in the Private Bill Office a declaration, signed by them, stating that the Bill is the same, in

every respect, as the Bill which was presented in the present Session.

Ordered,
That as soon as a certificate by one of the Clerks in the Private Bill Office that such a declaration has been so deposited has been laid upon the Table of the House, the Bill shall be deemed to have been read the first and second time and committed.

Ordered,
That all Petitions against the Bill presented in the present Session which stand referred to the Committee on the Bill shall stand referred to the Committee on the Bill in the next Session.

Ordered,
That no Petitioners shall be heard before the Committee on the Bill unless their Petition has been presented within the time limited within the present Session.

Ordered,
That no further Fees shall be charged in respect of any proceedings on the Bill in respect of which Fees have already been incurred during the present Session.

Ordered,
That these Orders be Standing Orders of the House.—[The Second Deputy Chairman of Ways and Means.]

Oral Answers to Questions — NORTHERN IRELAND

Young Persons (Employment)

Mr. John Ellis: asked the Secretary of State for Northern Ireland what progress has been made with regard to the youth opportunities programme; and if he will make a statement.

Mr. Canavan: asked the Secretary of State for Northern Ireland what further steps he has taken to improve the employment prospects of young school leavers in Northern Ireland.

The Minister of State, Northern Ireland Office (Mr. J. D. Concannon): I announced on 17th May a £13 million package of measures aimed at alleviating unemployment in Northern Ireland. This extra finance has enabled a number of measures specifically related to young people to be taken.
On 30th June my right hon. Friend the Secretary of State announced in the House that a youth opportunities programme


would be established in Northern Ireland. The Department of Manpower Services will be responsible for co-ordinating the programme. Officials have had discussions with the Northern Ireland Region of the CBI and the Northern Ireland Committee of the Irish Congress of Trade Unions. Arrangements are in hand for a further meeting with interested bodies, including some who should be able to run schemes under the programme.
The Department will itself operate a number of schemes and action is being taken to ensure that the necessary training and careers staff will be available as the programme gains momentum. The programme's primary aim will be to provide effective training and experience to help young people into permanent employment, and it is expected to add some 2,000 places to those already provided in training and employment schemes.

Mr. Ellis: I thank my hon. Friend for that reply. Can he say how much this programme has cost and how it compares with schemes in this country?

Mr. Concannon: The Northern Ireland programme will provide about 6,000 places compared with 130,000 in Great Britain. If we use the multiplier of 40, the ratio in Northern Ireland is much higher than in the rest of the United Kingdom. It is too early to give any firm estimate of the cost of the programme but indications are that when it is fully operative it could be as much as £40 million.

Mr. Canavan: Will my hon. Friend urge the Northern Ireland Development Agency to help create better employment opportunities for young school leavers by assisting in manufacturing and industrial projects such as the crystal factory in Andersonstown, which some of us in the Parliamentary Labour Party visited earlier this year, which is making a meaningful contribution to creating jobs for young school leavers in Northern Ireland.

Mr. Concannon: I shall use every arm that I can in Northern Ireland. There are several opportunities that I can use. We do, of course, look hard at the employment of young school leavers and teenagers. The NIDA is one of the arms that help me very well indeed.

Mr. Powell: Is it not the case that another factor which has to be taken into account when judging the ratio of expenditure on youth opportunities is that the level of unemployment is higher in the Province than it is in any other part of the United Kingdom?

Mr. Concannon: Yes. I was only drawing comparisons to show how much we were doing in Northern Ireland compared with the rest of the United Kingdom. With the unemployment rate in Northern Ireland, that is just how it should be.

Security

Mr. Molyneaux: asked the Secretary of State for Northern Ireland whether he will make a statement on the security situation in Northern Ireland.

Mr. Farr: asked the Secretary of State for Northern Ireland if he will make a further statement on the security situation in Northern Ireland.

The Secretary of State for Northern Ireland (Mr. Roy Mason): Both Republican and Loyalist terrorist groups are being brought under growing pressure by the effectiveness and vigilance of the security forces. Terrorist attacks are still being made from time to time, especially on the security forces and against property, but these must not be allowed to mask the very real improvements of recent months. So far this year nearly 750 people have been charged with terrorist crimes, including over 140 with murder and attempted murder and over 260 for firearms and explosives offences.

Mr. Molyneaux: Bearing in mind the IRA habit of switching to new tactics, will the Secretary of State assure the House that during the period when Parliament is in recess there will be flexibility in response to such changes in tactics?

Mr. Mason: I can assure the hon. Gentleman on that score. We are, of course, aware of the methods that the Provisional IRA particularly has used in the past and we know how it tends to switch targets. At the moment it appears to be concentrating particularly on pinpointing members of the security forces. I am under no illusions. I do not allow myself to be complacent at all. During the course of this year we are


determined to make substantial inroads into terrorist activity in Northern Ireland.

Mr. Farr: While recognising what the Secretary of State has said, may I ask him to make a statement about the non-payments of rates in certain areas? Is that improving, and are we nearing a situation in which rate demands can be universally enforced?

Mr. Mason: I do not know that the non-payment of rates arises on the security question, but I should have to have more knowledge of the question before I could give a more detailed reply.

Mr. Goodhart: The security forces are to be congratulated on their recent successes, but is the right hon. Gentleman aware that a substantial propaganda campaign is now being mounted against the RUC Reserve? Does he think that one of the reasons for this campaign is the recognition that the RUC Reserve could become an important channel for recruiting members of the minority community into the security forces?

Mr. Mason: I would very much appreciate leaders of the minority community now encouraging their people to join the RUC Reserve, and the RUC in particular. I agree with the hon. Gentleman that there has recently been a campaign by the Provisional IRA against the RUC because of the tremendous successes achieved by the RUC during this year. In the first six months of 1976, there were 634 bomb incidents. So far this year there have been 335. Compared with the first six months of 1976, civilian deaths are down from 146 to 49 and civilian injuries have been reduced from 1,253 to 657. Alongside that, the RUC has been increasing not only its charging rate but its conviction rate against terrorists during the course of this year.

Housing

Mr. Watkinson: asked the Secretary of State for Northern Ireland if he will make a statement on the housing situation in Northern Ireland.

The Under-Secretary of State for Northern Ireland (Mr. Ray Carter): My officials and the Housing Executive have been carrying out an intensive and

detailed analysis of the Northern Ireland housing problem, which is, as the House knows, extremely complex and serious. Their work is now bearing fruit, and we are taking action in a number of fields. I give a particularly high priority to the improvement of the situation in Belfast.

Mr. Watkinson: Is my hon. Friend aware that those of us who serve on the Public Accounts Committee are well aware of the enormous problems confronting the Housing Executive in Northern Ireland? Can he say whether he is satisfied that sufficiently speedy progress is being made in this area? Can he also say whether he has any indication yet that any of the schemes that he is introducing will encourage the purchase of private sector housing, given the fact that house prices in Belfast are especially high?

Mr. Carter: I am not satisfied that we are doing enough. We are dealing with an enormous housing problem in Northern Ireland, especially in Belfast. That is why I became the chairman of the steering group to oversee the redevelopment of Belfast. I hope that in the next 12 months or so we shall see some real evidence on the ground. We are seeking, through equity sharing and mortgage option schemes, to increase purchases of private houses in Northern Ireland.

Mr. Wm. Ross: Have any investigations been carried out into the effects of wall insulation, to get rid of the problem of condensation that we have in Northern Ireland, and has any investigation been carried out to improve the design of houses to try to avoid this problem in future building programmes?

Mr. Carter: The problem of condensation in houses is not peculiar to Northern Ireland. I doubt whether there is any constituency in the United Kingdom with public or private housing which does not need something done about the problem of condensation. We are alive to it in Northern Ireland and we are seeking to do whatever we can to eradicate the problem, which in many cases is not the fault of design but, rather, the heating practices of those occupying the houses.

Mr. Kilfedder: In view of the generally lower incomes in Northern Ireland, which


I reckon at about £4 a week less than in Great Britain, and in view of the higher costs of food, heating, clothing and transport, will the hon. Gentleman freeze Housing Executive rents for a period as a contribution towards avoiding hardship and as a social measure which will be greatly appreciated in the Province?

Mr. Carter: As is so very often the case, the hon. Gentleman has his facts wrong. It is not true that incomes in Northern Ireland are substantially below those in the rest of the United Kingdom. I must tell the hon. Gentleman bluntly that there is no prospect of a freezing of housing rents in the public sector in Northern Ireland.

Young Offenders

Mr. Townsend: asked the Secretary of State for Northern Ireland if he will bring forward proposals for improving the system for handling and treating young offenders in juvenile courts in Northern Ireland.

Mr. Carter: An inter-departmental review group under the chairmanship of Sir Harold Black is carrying out a comprehensive review of legislation and services for children and young persons, including the rôle of juvenile courts.
The group issued a consultative document last month. Meanwhile, we are not aware of major inadequacies in the present arrangements for dealing with young offenders in juvenile courts in Northern Ireland which require short-term and piecemeal changes.

Mr. Townsend: Does not the Minister appreciate that the whole structure for handling young offenders in Northern Ireland by the courts, training establishments and the probation service has fallen about 10 years behind current practice in the United Kingdom and that young offenders are more frequently given custodial sentences in Northern Ireland? Will the Government take vigorous steps to put this right?

Mr. Carter: That is precisely why we have a review of the present procedures. I can only agree with the hon. Gentleman. If he has specific observations to make, I am sure that the review body will be pleased to receive them.

Mr. Hardy: Without anticipating that review, can my hon. Friend tell us whether there are a sufficient number of probation officers and social workers, especially in the areas of difficulty?

Mr. Carter: In the peculiar circumstances in which we live in Northern Ireland, the probation service and the social services as a whole are fully equipped to deal with the current situation. Once again, the review body will look at all aspects of juvenile crime.

Political Parties (Talks)

Mr. van Straubenzee: asked the Secretary of State for Northern Ireland whether he will make a statement on the progress of his talks with the political parties in Northern Ireland to achieve a political settlement.

Mr. Mason: I reported to the House on 30th June about discussions with the political parties. These are still at an exploratory stage, and there is nothing that I can add to what I said on that occasion.

Mr. Straubenzee: I appreciate that the Secretary of State is not responsible for what appears in the public Press, but will he take us into his confidence to the extent of indicating whether some kind of structure on the lines of an advisory assembly, with a committee set-up, is what he is talking about? Since we shall not be able to question him again for some weeks owing to the imminence of the Summer Recess, will he accept good wishes for whatever efforts he is making to achieve political advances in Northern Ireland?

Mr. Mason: I indicated earlier that apart from my official talks with all the major four parties concerned, other exploratory talks were taking place. I have indicated that I should be prepared to consider interim arrangements that devolved real power and responsibility and commanded widespread support throughout both parts of the community. I am not committed to any specific proposals, and I personally have not been negotiating. These are exploratory talks to discover the extent to which we can find common ground between the parties. I recognise that the House will be going into recess for quite some time. I hope that these talks will continue. But the House has also to recognise that we are


moving into the marching season and the holiday period in Northern Ireland as well. I hope that we can proceed.

Mr. Molyneux: Is not the time opportune when the Secretary of State might give some thought to the possibility of putting forward suggestions on behalf of Her Majesty's Government?

Mr. Mason: I bear in mind what the hon. Gentleman says. He has been playing a leading part from Westminster in suggesting the way in which these talks might be fashioned. I bear in mind what he says, but I think that it is too early to take any initiative. As he will recognise, the imposition of an initiative on the parties in Northern Ireland could be very dangerous, especially if it led people to believe that there was hope and then we plunged them back into the depths of despair.

Mr. McNamara: Will my right hon. Friend confirm that the three principles which have underlined the bipartisan policy, such as it has been over the past years, are still the principles which govern Her Majesty's Government's policy in trying to find a solution in the Six Counties?

Mr. Mason: Yes. I have explained many times my policy goal. It is the goal of Her Majesty's Government. I am sure that all parties will agree that we want devolved executive government with a legislative assembly in Northern Ireland, based on partnership between the two communities.

Mr. Biggs-Davison: Noting the suggestion of my hon. Friend the Member for Wokingham (Mr. van Straubenzee), may I ask whether the Secretary of State recalls that since the end of the constitutional convention my hon. Friend the Member for Abingdon (Mr. Neave) has pressed on behalf of the Opposition for a political forum to fill the political vacuum? Since the Government have belatedly acknowledged that Northern Ireland is under-represented at Westminster, does the right hon. Gentleman agree that local politicians should have the means of democratic expression, without which there is danger that politics in the Province will be taken over by paramilitary bullies? Should there not be more urgency in his approach? The right hon. Gentleman said that he has

not negotiated, but is he doing his utmost to reach agreement among Northern Ireland parties on the future of the Province?

Mr. Mason: The hon. Gentleman must be aware that talks on an advisory council would not satisfy the major parties in Northern Ireland. If we went forward on that basis, they would assume that we were being diverted from their ultimate goal and they would lose faith in Her Majesty's Government's intention of going for a fully devolved executive Government. I hope that the hon. Gentleman will also recognise that the paramilitary bully has not taken over, but is being forced to recede.
In regard to political aims, hon. Members should know that the Provisional IRA and the Provisional Sinn Fein have no democratic case left, have no electoral support in Northern Ireland, and are gradually being isolated.

Mr. John Ellis: Will the Secretary of State make haste slowly? Is he aware that there is considerable uncertainty about the line being followed in local representations across the political divide among responsible parties? Might there not be more merit in his arranging for a number of large halls to be made available in the recess to be put at the disposal of responsible political organisations at which they might join together and decide their policy—which might edify some of us more than is the case at present?

Mr. Mason: We have gone over these courses many times before. In regard to the role of Northern Ireland politicians, when the hon. Members for Antrim, North (Rev. Ian Paisley) and Belfast, West (Mr. Fitt) get together, I do not think the party political squabble that would ensue would result in any progress.

Terrorist Activities (Inquests on Victims)

Mr. Dunlop: asked the Secretary of State for Northern Ireland what is the reason for the delay in holding inquests into the death of victims of terrorist action.

Mr. Carter: Every effort is made to ensure that such inquests are held as quickly as possible and there is no undue delay. In many cases, however, police investigations are complex and lengthy


and it is inevitable that some delay occurs.

Mr. Dunlop: Is the Minister aware that long delay in these matters occasions great distress to members of the families of the victims of terrorism? Is he also aware that when there is no inquest there is no issue of a death certificate? This inhibits the settlement of the affairs of those who have been victims of terrorism. One of my constituents was murdered 15 months ago. As yet there has been no inquest. Will the hon. Gentleman undertake to expedite the carrying out of inquests?

Mr. Carter: I am aware of the problem to which the hon. Gentleman draws attention, but in the peculiar circumstances of Northern Ireland, where police investigations take a long time, I must tell him that there is little prospect of a major change in the situation. However, if the hon. Gentleman will let me have the details of the case to which he refers, I shall examine the situation and find out the reasons for the delay.

Prisoners and Prison Building

Mr. Hardy: asked the Secretary of State for Northern Ireland if he will make a statement about the prison population and building programme in Northern Ireland.

Mr. Concannon: The prison population is continuing to increase, but the rate of increase is less marked than during the early years of the civil disturbances. On 17th July 1977 the total number of prisoners, tried and untried, was 2,867. This compares with 2,483 at the same date in 1976 and 763 on 1st January 1970.
To meet the increase in population and to provide more satisfactory accommodation, a comprehensive building programme is under way. Six cell blocks, with 100 cells each, have been completed at Maze prison and two more will be ready later in the year. A new closed borstal is expected to be ready in October, a young offenders' centre with 300 places should be completed by mid-1978, and a start has been made on a new prison at Maghaberry, which I hope will be ready for occupation early in 1982.

Mr. Hardy: I am very grateful for that full information, but will my hon. Friend

give the cost of the current prison building programme?

Mr. Concannon: The cost of the current building programme—I stress "current" programme—is nearly £38 million. The Maze cell blocks and ancillary accommodation amount to £11.8 million; the closed borstal, £13 million; the young offenders' centre, £5.6 million; and Maghaberry, £19 million. Those figures do not take account of the contents and furniture of cells.

Mr. Neave: Surely the completion of the new prison is urgent, since 1982 seems a long way away. Will the Minister also say something about remission policy? Is he aware that some of us have had reports from the security forces that they are concerned about the level of remission given to those convicted of terrorist offences? Does he recollect an answer given earlier this year, stating that between March 1976 and February 1977, 358 special category prisoners were released with remission? We supported the treatment of offenders legislation in 1976, but does the Minister think it wise to grant remission to those who consistently refuse to obey ordinary prison rules?

Mr. Concannon: Those who disobey prison rules do not get remission. Indeed, they lose remission for every day that they do not observe those rules. I must remind the hon. Gentleman that the legislation in relation to this system was passed by the House. I assure the House that every "streaker" in Northern Ireland loses a day's remission for every day of disobedience. Indeed, some have lost nearly all their remission.
On the other point that was put to me, I would inform the hon. Gentleman that there is no parole system in Northern Ireland. We have a system in which half remission is allowed to those who obey prison rules and behave themselves. If they are caught misbehaving afterwards, and continue to do so after they have been let out, the courts can bring them back to justice and reimpose that amount of prison sentence. I understand, from the last batch of figures that we received, that only one of the people convicted of terrorist offences was brought back to be dealt with by the courts.

Mr. Freud: In view of the general determination not to create martyrs in Northern Ireland and in the light of the


article inThe Guardianon 8th June, will the Minister have another look at the case of William Gallagher, who spent a year in prison in the period between arrest and conviction and who was convicted on disputed identification and an alleged verbal admission?

Mr. Concannon: The hon. Gentleman rightly draws that case to my attention, but it is only one of the many cases that arrive on my desk almost every week. I sometimes wonder whom I have got locked up in prison.

Miss Maynard: In view of the reply to the original Question and the information given about the new prison, detention centre and borstal, does my hon. Friend agree that the building of prisons is the only growth industry in Northern Ireland?

Mr. Concannon: Certainly not. I have the problem of keeping up with the successes of the security forces. Once they catch these criminals, I have to find places to put them in. So long as the police and the Army in Northern Ireland are so successful in their activities against this criminal element, I shall have to keep on building prison cells.

Mr. Farr: Can the Minister say whether the security of the prison officers has improved, and to what extent there is interchangeability between prison officers serving in Northern Ireland and those serving in Great Britain?

Mr. Concannon: The figure of prison officers on loan from Great Britain serving in Northern Ireland has dropped from 400 to less than 100. The morale of the prison officers is very high, despite the cowardly attacks made upon them. I do not think the hon. Gentleman would like me to spell out the security measures taken by the security authorities. I wish to pay tribute to the sterling work that they have done in the face of great intimidation.

Recreation Facilities

Mr. Bradford: asked the Secretary of State for Northern Ireland whether his future social amenity strategy includes the construction of a comprehensive leisure centre on the Bog Meadows to cater for South and West Belfast; and

what assessment he has made of the value of such large multi-district centres, compared with smaller leisure centres which can be identified with a definable community.

Mr. Carter: Responsibility for the provision of recreational facilities in Belfast rests with the city council. The facility planned for Bog Meadows is not a leisure centre but a recreational area, which will include an all-weather floodlit games pitch, a children's play area, and a recreation-cum-community hall. This provision is one of 10 new neighbourhood recreation facilities that will be provided by the Belfast City Council as part of the Government programme of action in the Belfast area of need.

Mr. Bradford: I am very grateful to the Minister for that informative reply. Does he accept that there has been a piece of injudicious siting of a large leisure centre on the Albert Bridge Road, which was designed to provide facilities for East and West Belfast but is used only by a small section of the community, due to IRA dominance of the surrounding area?

Mr. Carter: No, I do not accept that at all.

Gas and Electricity Supplies

Mr. Powell: asked the Secretary of State for Northern Ireland whether he will urgently institute an economic study of the respective roles of gas and electricity in supplying the energy needs of Northern Ireland.

Mr. Concannon: Northern Ireland's energy needs are the subject of continuing study by the Department of Commerce, in the light of the published Shepherd and British Gas Corporation Reports on, respectively, the electricity and gas industries.
I do not think that it will be helpful to commission a separate economic study at this stage, bearing in mind the urgency of the electricity and gas problem; which face us. Decision on these problems will be taken by the Government on the basis of the fullest possible information.

Mr. Powell: Does the Minister of State realise—I am sure that he does—that my Northern Ireland colleagues are not prepared to allow the future of one


of these industries to be sacrificed for the future of the other industry? Admitting the urgency to which he refers, does he accept that it is necessary, before a substantive decision is taken, that there should be more technical and economic studies of the possibility of embodying both industries more closely in the corresponding industries of Great Britain?

Mr. Concannon: We have had two discussions in Committee on the gas industry and the electricity industry, and right hon. and hon. Members have let me know their feelings. I shall have to think very seriously about it. However, I must point out that we have all the economic advice that is available in Northern Ireland. The Department also has its own economic unit, headed by a professional economist. I do not know whether that is a good thing. To help us we also have an economic adviser, who is Professor of Economics at Belfast University.

Mr. McCusker: Will the Minister confirm that he agrees with his right hon. Friend the Secretary of State for Energy that North Sea gas is a national asset and not simply for the benefit of Great Britain? Does he accept that Northern Ireland is therefore entitled to benefit from it?

Mr. Concannon: I am sure that the hon. Gentleman does not think that he will trap me as easily as that. In the discussions that we have had we have talked about this. The decision is basically for the British Gas Corporation and how it sees its liabilities in terms of North Sea gas.

Mr. Biggs-Davison: Is it the Government's policy that the energy resources and requirements of the whole United Kingdom should be treated as a single long-term problem? The Minister mentioned the economic advice available to him. Has the Northern Ireland Economic Council been set up, and would this be a subject suitable for the council to consider?

Mr. Concannon: The Northern Ireland Economic Council, after a few hiccups, will be set up very soon indeed. On the other point, we get all the specialist advice available in Northern Ireland. Until a short time ago most of the Northern Ireland electricity and gas services were still

in the hands of the local authorities, and the gas industry still is. It is not a matter of saying that it belongs to one large unit. It has never been one unit, and many negotiations will have to take place.

Mr. Skinner: Are all these decisions taken in accordance with the views of the right hon. Member for Down, South (Mr. Powell) about the necessity for market forces and free enterprise to prevail at all times?

Mr. Concannon: If market forces and free enterprise prevailed in the economy of Northern Ireland and it had to deal with its own fuel policy, costs would be much higher. The cost of electricity in Northern Ireland is already 50 per cent. dearer to industry and gas prices are three times as high as in Great Britain. That shows how cheaply the rest of the United Kingdom gets its energy from the gas and oil fields in the North Sea.

Mr. Kilfedder: Have the Government sought the advice and assistance of the Common Market, since the cost of gas and electricity is clearly a severe burden to people in the Province and to industrialists who wish to provide more employment?

Mr. Concannon: Yes. I saw Senor Giolitti when he was in Northern Ireland a short time ago on his first visit in his new capacity. That point was put to him very well indeed. I shall be seeing him again in a series of meetings tomorrow.

Harland and Wolff Ltd. (Orders)

Mr. Michael McNair-Wilson: asked the Secretary of State for Northern Ireland how many of the seven ships currently on order from Harland and Wolff Ltd. are likely to produce a profit for the company.

Mr. Concannon: As regards five of the seven ships currently on order from Harland and Wolff Limited, I have nothing to add to the reply that I gave the hon. Member on 11th October 1976. Since then the company has received an order for the construction of two liquefied petroleum gas carriers for long-term charter to Shell. The financial basis of this order—including the injection of preference capital by the company—was outlined by my right hon. Friend the Secretary of State in a written reply on 27th April this year.
The company's latest forecast indicates that the price paid for these two ships should at least cover their construction cost.

Mr. McNair-Wilson: In the absence of profitable returns from most of the ships that it makes, how long does the Minister expect that the £60 million given to the company in 1975 will last? Will he say what further proposals for financial assistance the Government have to tide the company over the present lack of demand for new ships?

Mr. Concannon: It was originally expected that the £60 million would last until the end of 1978, but I can inform the hon. Gentleman that it seems possible that it will last beyond that date. The assistance that we are giving is to pursue orders for the shipyard so that it can become viable.

Mr. Neave: Does the Minister of State recall that I have been pressing him for some time for a diversification programme for Harland and Wolff? In many people's opinion the company's resourceful and experienced staff would allow it to diversify its product considerably. What is the Government's long-term policy for Harland and Wolff in this respect?

Mr. Concannon: There are inquiries into the diversification of as much of Harland and Wolff as possible, but the re-equipment of the main yard was to enable it to build huge tankers, and it is not easy to diversify some of the equipment used in Harland and Wolff to build other things. We are studying the shipyard. We shall diversify in any place that we can.

Department of Manpower Services (Conciliation and Arbitration)

Mr. Ernest G. Perry: asked the Secretary of State for Northern Ireland whether arrangements have yet been made for the transfer to the Labour Relations Agency of the conciliation and arbitration function now performed by the Department of Manpower Services.

Mr. Concannon: Following my announcement to the House on 21st January that these functions would be transferred to the Agency subject to the making of satisfactory arrangments for their continued performance, consultations have taken place between the Department

of Manpower Services, the Agency and the staff interests. As a result an order made under Article 16 of the Industrial Relations (Northern Ireland) Order 1976 transferring the functions to the Agency was laid before Parliament on 7th July. The order, which is subject to negative resolution, is due to come into force on 1st August.

Mr. Perry: I thank my hon. Friend for that reply and the rather belated decision, in view of the consternation felt about this matter in Northern Ireland, but can he give us the reasons for the transfer of these functions?

Mr. Concannon: These functions are being transferred following the representation of employers and trade unions to establish in Northern Ireland a conciliation and arbitration service which is completely independent of the Government. The development is similar to that which took place in Great Britain with the establishment of the Advisory, Conciliation and Arbitration Service. The reason why it has taken so long is that we have had to have detailed negotiations with all the men who will be involved in the transfer.

Mr. McCusker: Does the Minister remember the report on industrial relations in Northern Ireland during the disastrous period of the Industrial Relations Act in Great Britain—the report that commended the work of the conciliation and arbitration function of his Department? Is it not a pity that he will lose that intimate contact with industry, which at that time was found so beneficial?

Mr. Concannon: The intimate contact with industry will still be there. It will not be under my immediate control in the Department, but most if not all of the people who will be running the service will be the same people as are running it today.

Mr. Loyden: Is my hon. Friend satisfied with the consultations that took place with the trade unions on this and other problems? Will he say how frequently he meets the trade union on such matters?

Mr. Concannon: We have close liaison with the trade union movement in Northern Ireland. I should imagine that I meet representatives almost daily on


many different subjects. 1 stress that our links with the trade union movement are very close.

Geriatric Beds

Mr. Kilfedder: asked the Secretary of State for Northern Ireland what is the amount of financial resources which has been devoted for the provision of geriatric beds in the present and the next following financial years.

Mr. Carter: It is planned to spent £1,416,000 this financial year and £1,104,000 next year on new geriatric beds and the upgrading of existing ones. Large sums are, of course, spent annually on the maintenance of existing facilities, but the accounts are not kept in a way that enables geriatric costs to be separately identified.

Mr. Kilfedder: Although this question of geriatric beds was ridiculed by United Ulster Unionist Council Members behind me, who wish to keep this Government in office, none the less that answer proves that I am right in seeking to get this Government out of office. It is a disgraceful situation in Northern Ireland—

Mr. Speaker: Order. The hon. Gentleman may be quite correct, but he must ask a question.

Mr. Kilfedder: Will the Minister now take action to remedy the situation? Only last week four elderly persons, whose doctors said that they should be admitted to hospital as a matter of priority, could not get beds. It is quite disgraceful.

Mr. Carter: The hon. Member for Down, North (Mr. Kilfedder) sounds more and more like a candidate for one of the beds.
In Northern Ireland we achieve 14.9 beds per 1,000, whereas the national average is 15. I should have thought that direct rule was doing quite well in terms of geriatric beds.

Mr. Mellish: Will my hon. Friend arrange for one of those beds to be given to the hon. Member for Down, North (Mr. Kilfedder), who can stay there, for what good he is here?

Mr. Bradford: Will the Minister address his mind to another group of people who require round-the-clock attention—mentally handicapped children?
Currently 360 are awaiting vacancies in Muckamore Abbey Hospital, where beds become vacant but infrequently.

Mr. Carter: That is not entirely related to the question of geriatric beds. If the hon. Gentleman will let me have details of the matter that he has raised, I shall have it looked into and will send him a reply.

Road Casualties

Mr. McCusker: asked the Secretary of State for Northern Ireland if he is satisfied that all possible steps are being taken to reduce the high level of road casualties in Northern Ireland.

Mr. Carter: While measures being adopted in Northern Ireland to combat road accidents are in broad parity with those in Great Britain, the level of casualties remains unacceptably high. For this reason, last November I formed a study group drawn from interested organisations to make recommendations designed to reduce road casualties. I have now received its report and am considering its 10 major recommendations. Copies of the report have been placed in the Library of this House.
I have under consideration how many recommendations can be adopted for a draft order.

Mr. McCusker: Does the Minister recall that that report suggested that he could immediately introduce compulsory seat belt legislation in Northern Ireland? Why cannot he do that immediately? Also, what does he hope to do to combat drunken driving and accidents caused by speeding?

Mr. Carter: I cannot do anything immediately, because I received the report only on Monday. There are 10 fairly major recommendations in the report, which we shall have to consider. They have quite serious implications legislatively and in many other respects for Northern Ireland. I attach great importance to the report. As soon as we can get down to discussing how to implement its proposals we shall do so. I shall keep the hon. Gentleman informed of the progress that is made.

Mr. Craig: Can the Minister do anything to step up the inspection of the roadworthiness of vehicles? From casual


observation, there would seem to be many unfit vehicles on the road.

Mr. Carter: If a comparative judgment were made of the level of inspection in Northern Ireland and that in the rest of the United Kingdom, I think that the right hon. Gentleman would find that the level in Northern Ireland is significantly better than in the rest of the United Kingdom. I do not think that we can be criticised on any front in that respect.

Mr. Flannery: Does my hon. Friend agree that road casualties in Northern Ireland are almost twice as high as in the rest of the United Kingdom? Can he give us some idea why that is so? I had a conversation the other day with my right hon. Friend, who was most interested to know.

Mr. Carter: I have a report that goes into this matter in detail, which I will let my hon. Friend have afterwards. There are certain peculiarities in the situation in Northern Ireland that are not dissimilar to those in similar rural communities in Western Europe. The fact is that Northern Ireland has the worst road casualty figures in the whole of Western Europe, and we must do something about the matter.

Mr. Goodhart: As the number of casualties from traffic accidents in Northern Ireland has always exceeded the number of casualties from terrorism, even in the worst years, will the Minister pay particular attention to the recommendation about compulsory seat belts, which could do an enormous amount of good?

Mr. Carter: I am well aware of that factor, but I am equally concerned with the effects of drinking on driving standards in Northern Ireland. That probably has a more significant impact on casualty figures than does any other factor.

Oral Answers to Questions — QUESTIONS TO THE PRIME MINISTER

Mr. Speaker: Order. I want to state that in order to meet what I believe is the overwhelming wish of the House, on the open Questions which give rise to supplementary questions, of which no notice has been given, I shall call only the hon. Members who ask the Questions, so that the House can get on more quickly to substantive Questions.

Oral Answers to Questions — PRIME MINISTER (ENGAGEMENTS)

Mr. McCrindle: asked the Prime Minister what are his public engagements for 21st July.

The Prime Minister (Mr. James Callaghan): This morning I presided at a meeting of the Cabinet. In addition to my duties in this House, I shall be holding further meetings with ministerial colleagues and others including one with the President of the European Commission and one with a delegation from the Young Socialists of the Social Democratic Party of the Federal German Republic.

Mr. McCrindle: With the CBI today accusing the Government of opting out and a leading Liberal describing the new wages policy as a massive retreat, will the Prime Minister remind the House and the country what remains of that special relationship between the trade unions and the Labour Party that we were told in 1974 was indispensable to the prosperity of the country?

The Prime Minister: The return to free collective bargaining is a decision of the trade union movement. In a democracy such as ours it is not a matter the Government can control. But a very close relationship will continue to exist. I refer the hon. Gentleman to what I said on this matter yesterday.

Mr. Canavan: asked the Prime Minister what are his official engagements for 21st July.

The Prime Minister: I refer my hon. Friend to the reply that I gave earlier today to the hon. Member for Brentwood and Ongar (Mr. McCrindle).

Mr. Canavan: In view of today'sDaily Telegraph description of the Leader of the Opposition as a mixture between Oscar Wilde and the Red Army Choir, would my right hon. Friend care to comment on her statement yesterday that wage differentials for the higher-paid within the public sector should be met within strict cash limits? As this appears to mean that within the Health Service, for example, the Tory Party would like to meet the wage demands of the overpaid consultants out of the


pockets of the nurses and other Health Service workers, and possibly also at the expense of the health and even the lives of patients, would it not be more appropriate for theDaily Telegraphto describe the right hon. Lady tomorrow as surpassing even Lady Macbeth for sheer bloody ruthlessness?

The Prime Minister: I am not surprised that my hon. Friend has to put his own construction and interpretation on the speech to which we listened yesterday. I congratulate the right hon. Lady on her style. If only the content had matched it, we should know a lot more about Tory policy.

Mr. Luce: asked the Prime Minister if he will list his engagements for Thursday 21st July.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave earlier today to the hon. Member for Brentwood and Ongar (Mr. McCrindle).

Mr. Luce: As the unemployment figures are likely to reach 11 million very shortly, will the right hon. Gentleman say why the Government have continually refused to remove the legislative and taxation obstacles to the expansion of small busineses, which would have the result of creating more wealth and jobs and increasing productive employment? What are the Government waiting for?

The Prime Minister: It would be helpful if these Questions were put down in detail, as I should then be able to provide hon. Members with answers. I have not been transferring substantive Questions. In so far as my recollection serves me, the hon. Gentleman is mistaken. Worthwhile reliefs were given to the small business man in the last Budget. I believe that the tax exemption limit was increased substantially. A number of measures have been introduced. If the hon. Gentleman puts down a detailed Question to the Department of Industry he will get a proper reply.

Mr. Skinner: asked the Prime Minister if he will list his official engagements for 21st July.

The Prime Minister: I must give my hon. Friend the reply that I have given so many times. I refer him to the reply

that I gave earlier today to the hon. Member for Brentwood and Ongar (Mr. McCrindle).

Mr. Skinner: Will my right hon. Friend take time out to consider Lord Denning's judgment of 24th May of this year, which will seriously affect the common law damages of those involved in trade unions and work generally who have been injured at work? Is he aware that since that date awards under the Administration of Justice Act, passed by the previous Labour Government in 1969, which allocated interest according to the damages that were paid to various persons both on personal injury and death, have been removed by Lord Denning's judgment? It will remove between 10 per cent. and 15 per cent. of the total amount of damages payable to workers. Will my right hon. Friend take time to consider the judgment and to ensure that it is reversed?

The Prime Minister: My hon. Friend has raised an important matter. I shall look into it and communicate with him in due course.

Oral Answers to Questions — TUC

Mr. Wyn Roberts: asked the Prime Minister when he last met the TUC.

The Prime Minister: I refer the hon. Member to the reply which I gave to my hon. Friend the Member for Thornaby (Mr. Wrigglesworth) on 14th July.

Mr. Roberts: At that last meeting did the Prime Minister discuss with the TUC the need for possible guidelines and certainly strict monitoring of any productivity agreements outside the 12-months rule to ensure that they are genuinely self-financing, and not bogus agreements such as have blighted pay policies in the past? If he did not discuss that matter with the TUC, does he agree that it should be considered?

The Prime Minister: Most of these matters have been discussed with the TUC.

Mr. Skinner: When the Prime Minister meets the TUC on the many occasions on which he undoubtedly will in the near future, will he tell it that the members of the Cabinet are no longer going to


orchestrate the view that Margaret Thatcher is almost—[Interruption.]

Mr. Speaker: Order. I think that the hon. Gentleman forgot for a moment how we address each other in the House.

Mr. Skinner: I was using the tactics that she used yesterday, Mr. Speaker.
Will my right hon. Friend explain to the TUC that we no longer subscribe to the view that the Leader of the Opposition will be able to order the blue curtains for No. 10 Downing Street? Now that we have got rid of the incomes policy and almost restored free collective bargaining, will he move a step further and freeze prices, get us out of the Common Market, and restore the cuts in public expenditure, because that could be a winning ticket?

The Prime Minister: The answer to the first part of the question is "Yes, Sir", and to the second part "No, Sir."

Mr. Adley: As many aircraft workers are represented on the TUC, will the Prime Minister take time—perhaps this afternoon—to telephone his son-in-law and remind him that, as he is now a paid public servant, it is his job to uphold British interests, including the views of Her Majesty's Government on support for Concorde?

The Prime Minister: The hon. Gentleman is a keen supporter of Concorde. However, I do not think that whether or not one personality flies in it should have any particular influence on the fact that that very fine aircraft should be permitted to land in New York.

Mr. Tom King: Has the Prime Minister seen the statement by Sir Derek Ezra that falling coal productivity could threaten the supplies of house coal in this country this winter? In any discussions with the TUC will he be returning to the subject of the importance of a pit-by-pit productivity scheme for miners?

The Prime Minister: I think that that question should be put to my right hon. Friend the Secretary of State for Energy. It is clearly a matter for discussion with the National Union of Mineworkers.

Oral Answers to Questions — NATIONALISED INDUSTRIES

Mr. Mike Thomas: asked the Prime Minister when he last met the chairmen of nationalised industries.

The Prime Minister: I refer my hon. Friend to the reply that my right hon. Friend the Lord President of the Council gave on my behalf to the hon. Member for Newbury (Mr. McNair-Wilson) on 10th March.

Mr. Thomas: When my right hon. Friend next meets the chairmen of the nationalised industries, what reassurance will he be able to give them that the Government will be keeping an eye on private sector wage settlements over the next 12 months? Is it not remarkable, that those who are constantly bleating about Government interference are terrified when it appears that the Government are no longer holding their hand in respect of wages?

The Prime Minister: There is a responsibility upon employers as well as upon trade unions, as I emphasised in yesterday's debate. Employers may not like the sharp wind of not being able to shelter under a nationally agreed wages policy, but it is now for them to stand up and indicate to their workers what can be paid and what is proper to be paid. A great many company employers would get on a lot better if only they would adopt the system of planning agreements, under which the workers in their companies would know a lot more about the real prospects for their own industries.

Mr. Hugh Fraser: Will the Prime Minister consider the attitude of the Chairman of the Central Electricity Generating Board after the right hon. Gentleman has made complete nonsense of the power industry? Will he consider dismissing him? At the same time will he consider making every Liberal Member a Privy Councillor, to balance severity with mercy and cement the support that they have given to a Socialist Government?

The Prime Minister: I know that the Liberal Party often strikes sparks, but I am not sure what connection there is between it and the Central Electricity Generating Board. As for the Board, I hope that there will he a return to the proposal for a consistent and steady ordering programme. That would be invaluable to the future of the power plant industry, which this country needs. I think that it is short-sighted that it has not been able to agree on a restructuring so far. The Government must continue to press it. As for making Members of the


Liberal Party Privy Councillors, I shall certainly be glad to consider that proposition. I notice that every time we have a vote of confidence the majority increases. I am delighted to see that.

Mr. John Mendelson: In view of the developing anxiety in the House that the Government, and the Prime Minister in particular, should restrain the chairmen of nationalised industries from looking at demands for wage increases even before negotiations have started, would it not be much better if Liberal Members in particular urged my right hon. Friend to leave responsible trade unionists and their employers to get on with the negotiations in the traditional manner?

The Prime Minister: I am much in favour of their getting on with the negotiations in a traditional manner. I must also ask them to accept and work within the general guidelines that the Chancellor laid down last Friday.

Mrs. Winifred Ewing: When the Prime Minister next meets the Chairman of British Rail, will he again say how unsatisfactory was the answer given yesterday by the Secretary of State for Transport about the old rolling stock that is dumped in Scotland from south of the border, except, of course, when there are important oil exhibitions in the North-East of Scotland, when it is important to borrow expensive rolling stock from the English services to convince business men that that is what Scotland normally has? Is it not time that the Prime Minister took very seriously the run-down of British Rail in Scotland from the point of view of tourism and passengers, and much more seriously than his right hon. Friend did yesterday?

The Prime Minister: I am not acquainted with this matter.

CABINET MINISTERS (COLLECTIVE RESPONSIBILTY)

Mr. Tim Renton: Q6. Mr. Tim Renton asked the Prime Minister whether he has received any representations from Members of Parliament concerning a revision of the doctrine of collective Cabinet responsibility.

The Prime Minister: A number of hon. Members have tabled Questions to me

on collective responsibility, but I have received no recent written representations on the subject.

Mr. Renton: Will the right hon. Gentleman use this opportunity to tell the House what importance he attaches to Ministers continuing to support measures that have been outlined in the Gracious Speech? Whether one likes its contents or not, if that speech is to be regarded as a legislative programme, surely it needs to have the continuing weight of the whole Government behind it?

The Prime Minister: Yes, I would generally accept that proposition.

Mr. Heller: Does my right hon. Friend recall that I have personally made representations on this matter in the Chamber on a number of occasions? Is it not time that we updated the whole process to recognise that the Cabinet is not entirely in agreement on every issue? [Interruption.] Should we not recognise that no Cabinet is entirely in agreement on every issue? Does my right hon. Friend agree that it is time we brought this into practice, instead of perpetuating a myth that started in the last century?

The Prime Minister: I thought the complaint was that I had updated the doctrine.

Mr. Ridley: Next time the right hon. Gentleman publishes a Queen's Speech, will he consider allowing a minority report to be published?

The Prime Minister: There always is. It takes the form of an amendment by the Opposition.

CONSOLIDATED FUND BILL (DEBATE)

Mr. Speaker: I have two short statements to make. The first is with regard to business for next week.
For the debate—if it is indicated by the Leader of the House—on Thursday 28th July on the Second Reading of the Consolidated Fund (Appropriation) Bill, hon. Members may hand in to my Office by 9 o'clock on the morning of Wednesday 27th July their names and the topics that they wish to raise. The Ballot will be carried out as on the last occasion. An hon. Member may hand in only his own name and one topic.
The debate will cover all the main Estimates originally presented for the current financial year in the House of Commons Papers 174 and 231, and the revised Supplementary Estimates presented since then in House of Commons Papers 441 and 442. It will be in order on Second Reading to raise any topic falling within the compass of those Estimates.own name and one topic.
I shall put out the result of the Ballot on the morning of 27th July.

SUB JUDICE RULE (MR. MAURICE JONES)

Mr. Speaker: Secondly, yesterday the hon. Member for Sheffield, Heeley (Mr. Hooley) raised a point of order relating to one of his constituents who, though not directly identified by the hon. Member, must, I think, clearly be Mr. Maurice Jones, the Editor of theYorkshire Miner. The hon. Member asked about the application of the sub judicerule. I informed the House that other hon. Members had made similar inquiries privately, and I promised to give a ruling today.
The facts are these. Mr. Jones was charged with an offence on 23rd June and released on bail to appear before a court on 8th July. He did not appear to answer to his bail on 8th July and is now abroad and outside the jurisdiction of the court. No day has been fixed for the resumption of the court hearing.
The Resolution of the House of 23rd July 1963 make the operation of thesub judicerule subject always to the discretion of the Speaker. To use this discretion so as to waive thesub judicerule is something which no Speaker would wish to do lightly and without long and careful consideration.
I do not think that it has ever before been done in such a way as to waive the rule completely. However, I am satisfied that in the special circumstances of this case it is proper to waive the rule. I have accordingly given instructions that all Questions and motions temporarily withheld from the Notice Paper should be released to the printers forthwith. Thesub judicerule will not, for the immediate future, govern any other proceedings in the House connected with the charges against Mr. Jones.

BUSINESS OF THE HOUSE

Mrs. Thatcher: May I ask the Lord President to state the business for next week?

The Lord President of the Council and Leader of the House of Commons (Mr. Michael Foot): The business for next week will be as follows:
MONDAY 25TH JULY—Completion of the remaining stages of the Finance Bill.
TUESDAY 26TH JuLY—Debate on the Select Committee Report on the Conduct of Members.
Debate on the Joint Select Committee Report on sound broadcasting.
Motions on the African Development Fund Order and on the Assistance for House Purchase and Improvements Order.
Debate on the motions on Members' allowances, salaries and pensions.
WEDNESDAY 27TH JULY—Consideration of Lords amendments to the Control of Office Development Bill and of other Lords Messages which may be received.
Proceedings on the National Health Service Bill [Lords] and the remaining stages of the Employment Protection Bill [Lords], which are consolidation measures.
Motions on the orders on dividends. pay and prices.
THURSDAY 28TH JULY—Proceedings on the Consolidated Fund (Appropriation) Bill.
Consideration of any Lords Messages which may be received.
FRIDAY 29TH JULY—It Will be proposed that the House should rise for the Summer Adjournment until 26th October.

Mrs. Thatcher: May I ask the Leader of the House whether, on Wednesday, for the debate on dividends, pay and prices there will be three orders? Does the right hon. Gentleman intend to take them separately, or together, and when will the orders be available?
Secondly, the right hon. Gentleman said that the Summer Recess would cease on 26th October. As there does not seem to be much legislation left for the spillover, can he say when he plans the State Opening of the new Session?

Mr. Foot: On the first question, I think that the debate could take place on these matters together, but there will be three separate motions.
On the second question, we are hoping that it will hardly be necessary to have any spill-over at all. What we suggest is that the House should meet in the new Session on Thursday 3rd November.

Mr. Mellish: May I ask two questions on the debate on Tuesday concerning the behaviour of Members of the House? First, what form will it take? Do the Government intend to put down a motion? If so, may we have an indication of what motion it will be? Will it be a "take note" motion, or an "approval" motion?
Secondly, for how long will the debate continue? Is it intended to stop it at, say, 7 o'clock? Will the debate be stopped at 7 o'clock because of other important business? It is important that hon. Members should know what is to happen, because this will be a free vote of the entire House and it is important that we should have that fact in mind.

Mr. Foot: I am grateful to my right hon. Friend for raising this matter. It is important that the House should know what is proposed. This is not a Government matter. A motion will be put down in my name asking for approval of the report from the Select Committee and it will be open to hon. Members, if they wish, to put down amendments.
As for the timing of the debate, I do not think it would be envisaged that we should end the debate at 7 o'clock. How long the House will wish to discuss this subject will be a matter for the temper of the House at the time. I think that we should proceed on that basis. What we shall be doing is following the precedents in these matters.

Mr. Beith: As the proceedings on the Consolidated Fund (Appropriation) Bill often last all night, is there not a risk to any Lords Messages on the Housing (Homeless Persons) Bill, or Private Members' Adjournment motions, which will start at 11 a.m. on Friday?

Mr. Foot: It is the case, as the hon. Gentleman suggests, that the debate on the Consolidated Fund (Appropriation) Bill normally goes on all night. We have

put down a reference to Lords Messages on that day as well as on the previous day because it is conceivable that we might not be able to deal with all the matters on Wednesday. We shall seek to do it then, but, if not, we shall seek to ensure that we can get the Housing (Homeless Persons) Bill through on Thursday. In any case, we wish to make provision to ensure that the Bill reaches the statute book.
I hope that it will not be necessary to use a day for that purpose in any spillover, if we have one. I hope very much that the House will co-operate in ensuring that the Bill, which has strong backing in the House, passes all its stages next week. I hope, too, that we shall get full co-operation from another place in helping that to happen.

Mr. Blaker: In view of the serious situation in Rhodesia and reports that the Cabinet has overridden the Foreign Secretary's suggestions about policy in that country, and the visit that the Foreign Secretary is to pay to Mr. Vance at the weekend, is it not important that the House should have a statement on this subject from the Foreign Secretary before we rise for the recess?

Mr. Foot: I suggest to the House that it should dismiss from its mind all kinds of reports inThe Timeson that subject —[Hon. Members: "AndThe Guardian."]—andThe Guardian,if it has on this occasion to share guilt withThe Times, but normally it isThe Timesalone that leads in these matters. On the major question, I agree that there should be a statement, and I think that one will probably be made by the Foreign Secretary on Monday.

Mr. Prescott: May I draw my right hon. Friend's attention to the publication of the Fowler Report on the Hull prison riot which concluded that liberal regimes led to riotous opportunities? Does my right hon. Friend agree that the House should be given an opportunity to debate this important matter particularly since the Home Secretary is considering the report and since I have received letters warning me about further riots this summer as I did before the Hull riots—a fact which was acknowledged in the Fowler Report?

Mr. Foot: I can assure my hon. Friend that he will have an opportunity to raise


this matter next week during the Consolidated Fund Bill debate. That should not pre-empt further debate on the subject.

Mrs. Chalker: When will the Government introduce a revised social security uprating order, because the original order had to be withdrawn because it was ultra vires?

Mr. Foot: We are looking to see whether it is necessary to take further action.

Mr. Greville Janner: Is time to be given to the Unfair Contract Terms Bill, which is so important? When are we to have the motion for the Adjournment of the House for the Summer Recess?

Mr. Foot: I hope that the first matter will be dealt with by the House tomorrow. I agree with what my hon. and learned Friend said about that measure. If it is not dealt with tomorrow, it will be one day next week. We are hoping that the Adjournment motion will be taken on Thursday.

Mr. Wyn Roberts: Do the Government intend to make a statement on devolution before the recess and, if so, when? Can the Leader of the House confirm that we are to be faced with two Bills—one for Scotland and one for Wales—in the next Session?

Mr. Foot: It is the Government's intention to make a statement on devolution before the recess. I believe that it will be made on Tuesday. I ask the hon. Member to await that statement before he jumps to any conclusions about that or any other aspect of the matter.

Mr. John Mendelson: May we return to the tradition of having the debate for the Adjournment earlier than on the last day before the House rises? Experience has shown that there is a larger House earlier in the week. Does my right hon. Friend agree that we do not want this debate to become perfunctory, with less attention being paid to it?

Mr. Foot: I understand my hon. Friend seeking to have the debate earlier in the week, but I have not found that the debate has been perfunctory in any sense in recent times. We have always had a considerable amount of discussion. If it were to be moved to Wednesday it might

be thought that the business that would have to be transferred from Wednesday to Thursday was perfunctory. That is not so. Wednesday's business is very important. We must ensure that it gets through. I am sure that we shall have a good debate.

Mr. Pym: Does the Leader of the House remember that in the 1970 Parliament he always complained that the Adjournment motion was taken on the last day? Is it not the case that he now invariably moves that motion on the last day? That is strange when one remembers what he used to say when he sat on these Benches.

Mr. Foot: The motion is not to be moved on the last day. Friday is the last day. In any case, I do not recall making many complaints on that score. I had more important complaints to make against the previous Administration. I am sure that the debate will work well.

Mr. Marten: Is the Leader of the House aware that there have been three Council of Ministers' meetings in Europe this week—on finance, agriculture and the budget? Is he aware that according to the Press those meetings resulted in the taking of important decisions, or non-decisions? May we have an assurance that we shall have statements on all three of those topics next week, otherwise, the House will be kept in the dark except for what it reads in the Press?

Mr. Foot: I know well the commitments which the Government have about making statements on these matters. We seek to follow the general rule which we laid down about statements being made as frequently as possible. We hope that there will be a statement on these matters next week. Since the hon. Member follows these matters closely, I am sure he will agree that, even though we are not yet perfect in this respect, there has been a considerable improvement in the last six to eight months in the way in which these matters are brought to the House.

Mr. Spriggs: Will my right hon. Friend reconsider his statement about the reassembly of the House on 26th October bearing in mind the length of time that hon. Members are expected to sit, both day and night, and the damage to the health of hon. Members and their families? In view of what has happened


over the last few months, will my right hon. Friend reconsider the date and bring us back to the House earlier?

Mr. Foot: I do not think that that proposal would command the unanimous approval of the House. We shall be debating this question on Thursday. The question of the hours of sitting is being discussed by the Committee on Procedure. Every time committees look into that question they discover some of the problems of seeking to say that the House should limit its periods of recess. We have not solved these problems.

Mr. Michael Morris: May we have a statement before the recess on the footwear study group and on the Government's policy on new towns?

Mr. Foot: I hope that we shall have a statement on the footwear industry next week. I am not sure on which day, but I expect that it will be on Monday. My right hon. Friend the Minister of Agriculture, Fisheries and Food will be making a statement tomorrow on some of the subjects raised in the question put to me by the hon. Member for Banbury (Mr. Marten).

Mr. John Evans: In view of the Press reports this morning that the Council of Ministers has slashed the regional policy fund by about 50 per cent. and in view of the unsatisfactory debate that we had on Monday, is it not important to have a statement next week about the Council of Ministers' actions in this respect?

Mr. Foot: I shall bring that representation to the attention of my right hon. Friend. As the House will see, these matters are attended to instantly. The hon. Member for Banbury had only to ask a question and I came back in a minute to gratify him.

Mr. Gow: When will the Government lay the orders to give effect to the rise in school meals charges from 15p to 25p?

Mr. Foot: That is not a matter to be discussed next week, thank God. It will be discussed in detail later.

Dr. Hampson: Is the Leader of the House aware of the arrangements that were made for the distribution to hon.

Members of the Green Paper on which we are about to have a statement? Is he aware that at 11.30 a.m. the Secretary of State's private office told me that a batch of copies of the Green Paper was coming immediately to the House, that they arrived at 12.30 p.m. but were embargoed until 3.30 p.m.? Is this an efficient way of dealing with the matter? There are 25,000 words and yet we received them only half an hour before the making of the statement. Does the Leader of the House consider that this is courteous? Is he aware that my hon. Friends the Members for Chelmsford (Mr. St. John-Stevas) and Brent, North (Dr. Boyson) received information from the Press, the members of which received their copies of the Green Paper early yesterday? I understand that a special messenger was sent over and arrived at noon with one copy. May we have an early debate in the House on this important matter?

Mr. Foot: I shall look into the matters mentioned by the hon. Gentleman. I would not accept what he has said without looking into the details. I do not think he knows all the background. No doubt my right hon. Friend the Secretary of State for Education and Science will be able to answer all the points made by the hon. Gentleman. There is no question of discourtesy to the House. If the hon. Gentleman has any representations to make, perhaps he should put them in a rather more inquiring manner rather than make dogmatic assertions.

Mr. Rhodes James: What is the Government's attitude towards the Guardianship (Amendment) Bill relating to the rights of grandparents to apply for access to their grandchildren? In view of the very strong support for the Bill among right hon. and hon. Members on both sides of the House, and in view of the considerable public interest in it, is the the right hon. Gentleman in a position to make a statement about the Government's attitude to it?

Mr. Foot: I understand that my right Friend the Home Secretary is looking into the matter with his customary sympathy. If that satisfies the hon. Gentleman, I am very glad to hear it.

EDUCATION (GREEN PAPER)

Mr. Speaker: Mrs. Williams—statement.

Mr. Pym: On a point of order, Mr. Speaker. May I draw to your attention and that of the House the length of the statement which the Secretary of State for Education and Science is about to make. Through the courtesies of the House, we have received a copy of what the right hon. Lady is about to say, and it is important, but it runs to five pages of foolscap. If there is a policy change in Government education strategy requiring a statement of this length, surely we should have a day's debate so that we may consider what the right hon. Lady has to say, in exactly the same way as the Government gave us a day yesterday to discuss their change in economic policy.
A Green Paper has been published relating to the statement. Surely it was not necessary for the statement to cover five foolscap pages. Would it not have been more appropriate if the statement were about one and half pages long and if we had had a debate on the subject later? It is an abuse of the practice of making statements in the House for, in effect, a speech to be made on a change of policy under the guise of a statement. It is an immensely unsatisfactory way of dealing with a matter as important as this.

Mr. Speaker: The Lord President.

Mr. Skinner: Further to the point of order—

Mr. Speaker: What the Lord President is about to say is further to the point of order. There are mysteries in this place. The Lord President.

The Lord President of the Council and Leader of the House of Commons (Mr. Michael Foot): I am willing to give way to my hon. Friend.

Mr. Speaker: Very well, if the right hon. Gentleman gives way. He indicated that he wished to speak.

Mr. Skinner: Before my right hon. Friend answers the question of the right hon. Member for Cambridgeshire (Mr. Pym), I want him to take into account the fact that—

Mr. Speaker: Order. The point of order must be put through me to whomsoever the hon. Gentleman wants to hear it.

Mr. Skinner: Yes. We are being very finicky today.

Mr. Speaker: Order. I know that it is the month of July, but even the hon. Gentleman must observe normal courtesies.

Mr. Skinner: Yes.
I wonder whether my right hon. Friend, before he answers the question, if he catches Mr. Speaker's eye in relation to the point of order, will take into account the fact that the Opposition often raise questions about the failure to make documents available on time, their length, and so on. Although in general I sympathise with that view, will my right hon. Friend undertake to examine the fact that the two-faced people on the Opposition Benches never raise the question when Common Market documents are not available. That has to be left to my right hon. and hon. Friends on the Benches below the Gangway. Even when the documents arrive, some of them are out of date. The EEC is changing policy almost every day of the week—

Mr. Speaker: Order. I think that the hon. Gentleman's point has been made.

Mr. Foot: Further to the point of order, Mr. Speaker. I think that it would be unwise for the House to pass judgment on my right hon. Friend's statement before it has heard it. I am sure that right hon. and hon. Members will find that it is a very good statement. The right hon. Member for Cambridgeshire (Mr. Pym) is one of the few Members who have had the opportunity of seeing how long the statement is.
We try all the time, as I have no doubt the right hon. Gentleman did in similar circumstances, to ensure that statements made to the House are kept as brief as possible, because they eat into the time of debates. We try persistently to do that. Also, we always seek to ensure that the questions put from the Opposition Front. Bench may be abbreviated. I am sure that we shall have a fine example of that this afternoon from the hon. Member for Brent, North (Dr. Boyson).

The Secretary of State for Education and Science and Paymaster General (Mrs. Shirley Williams): With permission, I should like, Mr. Speaker, to make a statement about education in schools in England and Wales, on which my right hon. and learned Friend the Secretary of State for Wales and I are today presenting a Green Paper.
The Green Paper assesses the present stage of development of our schools and makes proposals and recommendations for their future development. Substantial progress has been made towards full comprehensive reorganisation of secondary education, and the Government are determined to press ahead to complete this process so that secondary education shall be equally available to all children over the full range of ability. Having secured that aim, the Government look to a period of stability in organisation and of improvement in educational standards.
The Green Paper points to the need for positive discrimination to help those most in need; those handicapped in different ways, including the disadvantages of a deprived environment; the ethnic minorities; travelling children and others. Special measures are needed, both to help the pupils themselves and to encourage the recruitment of teachers with those attributes that can be of special value to disadvantaged children.
It also underlines the importance of offering equal educational opportunities to girls as well as boys. The curriculum needs to reflect this, from the study of science to training in parenthood and domestic responsibilities.
The Green Paper recognises that schools benefit in many ways from building close links with the community and that the groups most deeply involved with a school must always be the teachers and the parents. The Taylor Report, to be published in September, will have more to say on this subject. Meanwhile, a circular on a matter of special importance —the information which is available to parents about their children's schools—is already out for consultation and comment and should be issued early in the new school year.
It must be our concern, together with our partners in the school education system in England and Wales—the local education authorities and the teachers—

that the school curriculum should match the aptitudes and aspirations of boys and girls and of their parents for them as well as responding to national needs. The Government reject any idea of a central control of the curriculum but they believe that all those with responsibility for the schools should consider whether these needs are now properly met.
We therefore propose to ask each local education authority to consult the local representatives of the teachers and parents, employers and trades unions in carrying out a review of their curricular arrangements. This review and a joint study of what it reveals will precede the preparation of any curricular advice that we might then issue to local education authorities.
The Green Paper also deals with the accountability of schools and the need for a soundly based means of assessment for the educational system as a whole, for the schools, and for individual pupils. The assessment of the school system as a whole rests with Her Majesty's Inspectorate, which is moving towards quantitative analyses of what is done, for example, through the current surveys of primary and secondary schools, which complement the inspectors' traditional methods.
Secondly, local education authorities need to be able to identify schools' problems in performance and to take remedial action. But "league tables" based on standardised tests in isolation can be seriously misleading as they neglect many important factors, such as the school catchment area, the school's own objectives, and external factors.
Thirdly, the assessment of individual pupils is a continuous process in which the teachers' own competence and knowledge are of prime importance. The development of diagnostic tests and greater consistency of practice in their use will be encouraged by the education departments, but the Government reject the view that universal national testing of "basic literacy and numeracy" is desirable.
The Green Paper proposes further study of the concept of a leaving certificate for all pupils and it stresses the need for high standards of professional accuracy in record-keeping of pupils' progress. The keeping of records should be included in the review of curricular arrangements.
Any plans for improving the curriculum and raising standards must depend in large part on the full understanding and support of the teaching profession and on the quality of its members. We are concerned to improve the quality and relevance of initial training in a number of ways. First, we shall set higher minimum standards for entry and we shall require a qualification in English and in mathematics. We also aim to continue the recruitment to teaching of mature people who can bring useful experience of the outside world into the profession, as well as more teachers from ethnic minorities. We are seeking ways of improving the college curriculum and the professional relevance of the training process.
As the number of newly qualified teachers entering the schools falls we intend to consult our partners regarding better arrangements for the induction period for newly qualified teachers entering the schools. They need support in a number of ways. The arrangements might involve some reduction in new teachers' work load, and experienced members of staff could be given special responsibility for overseeing their work and progress.
I intend to consult the local authority associations and the teachers about these proposals and about other possible developments, for example, whether new teachers might be given an interim status when they complete their training and receive fully qualified status upon the satisfactory completion of probation. The Green Paper also envisages a major initiative in in-service training. This would build upon the wide variety of provision already made and would aim to include the development of specialist centres on Mr. Stokes: On a point of order, Mr. Speaker. Would it be possible for the Secretary of State to read a little more slowly? It is very hard to follow her.a regional or national level.
I now turn to an aspect of our proposals with which I should like to deal in slightly more detail. [HON. MEMBERS: "Too long."] I am taking one minute for each 1 million children in our schools. I do not think that that is too much.

Mr. Stokes: On a point of order, Mr. Speaker. Would it be possible for the Secretary of State to read a little more slowly? It is very hard to follow her.

Mrs. Williams: I always try to please all members of the Opposition, but sometimes it is a little difficult.
The Green Paper points to the need for employing authorities to develop more systematic approaches to the recruitment, training and deployment of their teachers during the period of declining pupil numbers. This changed situation will give scope for authorities to give more positive attention to the career development of their teachers and to consider, for example, whether their present arrangements are such as to secure the best appointments to headships. I am confident that they will wish to proceed in the closest consultation with the teachers' representatives in all these matters. Various aspects of all these matters may need to be reviewed.
I, for my part, pledge my willingness to join sympathetically in any discussions, especially where action on my part might be required. The overwhelming majority of teachers give devoted and efficient service throughout their careers. A difficult problem is posed by the small minority whose performance falls below an acceptable level of efficiency, for a variety of reasons—for example, from the effects of stress. Any cases of this nature will raise sensitive personal issues and I expect authorities to offer the fullest consultation to the teachers' associations in working out procedures for dealing with them which clearly satisfy the requirements of fair practice.
The Green Paper proposes the further development of links both nationally and locally between schools and productive industry and of more direct contacts between those working in schools and in industry to increase understanding on both sides. In particular, the Green Paper emphasises the need for a much wider development of careers education to widen the scope and expectations of boys and girls in their career plans and to take fuller advantage of the contributions which employers and trade unionists can make.
The curriculum interpreted in its widest sense should be more outward looking. It should place more emphasis on preparation for adult life in an internationally


oriented, democratic and industrial society. Parents, local industry and the community at large all have an essential part to play in helping schools to meet these needs.
There can be no end to debate on the education of our children, but there are times for self-examination and for the setting down of new objectives and new ways of reaching them. I believe that this is such a time and I look forward with confidence to the continued progress of our schools along the lines we have set out in the Green Paper.

Mr. St. John-Stevas: May I say to the right hon. Lady—I say it with regret—that, having had the opportunity briefly to look at her Green Paper and to hear her précis, I find it a rather disappointing document? Although we have no objection of course to her statement, our objection is to the lack of a debate on this document. I agree with her that one minute for 1 million children is not nearly enough.
We welcome the emphasis on higher standards and better qualified teachers, as these are themes that have been long stressed by the Opposition, but we are dismayed by the lack of positive proposals to improve the education service. If the Secretary of State is really serious about raising standards in schools, she has just told us that she intends to reject the most effective practical way of doing that—that is, to reintroduce the national standards of literacy and numeracy which were foolishly abolished by a previous Labour Government in 1966.
Why, since she has also just paid lip-service to parents, are there no proposals in this document to increase parental influence and freedom of choice? Why, since she has already received the Taylor Report, are there no proposals in this document for the appointment of parental governors? Although the right hon. Lady has been courageous in this document in admitting that comprehensive schools are not perfect, why are there no proposals for their improvement and why is there silence on their size, on the vital questions of setting and streaming and, above all, on mixed ability teaching? Surely her efforts would be much better concentrated on those questions than on pursuing this mindless vendetta against the

grammar schools. Above all, why is there a deafening silence about that which concerns parents most of all, namely discipline in schools and moral and religious education in the schools?
So may I express to the right hon. Lady the Opposition's fear—it is a genuine fear —that, far from being a watershed in our educational history, this inadequate Green Paper will be another missed opportunity that the Government have failed to take?

Mrs. Williams: I know that the hon. Gentleman did not have long to read the Green Paper, but I am amazed that he missed so much of it. In respect of the improvement of the teaching profession, we are proposing a graduate profession; we are proposing special bridging courses for mature teachers and for those from ethnic minorities; we are proposing higher requirements in English and maths on entry to the profession; we are proposing a new induction year; we are proposing advanced in-service training. The Conservative Administration who were in power for four years, when the present Leader of the Opposition was the Secretary of State for Education and Science, did none of these things. I do not think that the Opposition are in much of a position to complain.
With regard to parents, we have issued for the first time from the DES a requirement for information about State schools. The great majority of our parents have their children at State schools. The Opposition concern themselves largely with those who do not attend the maintained sector.
For the first time we have involved parents in consultation about education policy and the curriculum and all the other aspects of it. This has not happened before. My predecessor asked for a report on the government and management of schools. The hon. Gentleman knows perfectly well that I am not at liberty to announce to the House the conclusions set out in a report that has not yet been published, and the House of Commons would profoundly resent it if I did anything of the sort.
Finally, with regard to what the hon. Gentleman said about comprehensive schools, we are proposing a review of the curricula. We are proposing new approaches on asessment. We are proposing new approaches to the transfer from


primary to secondary education. We believe, as the Opposition do not, that we can make of our reorganised comprehensive schools an outstandingly successful and non-divisive educational system. That is what the Government are committed to.

Mr. Roderick: My right hon. Friend said that she would be setting higher requirements in English and mathematics for students wishing to enter teacher training colleges. As a mathematician, I beg her not to go ahead with such a scheme because so many students have poor facilities for mathematics at present and she would debar many good teachers from entering the profession merely because they have a blind spot in mathematics. It would be much better to impose on the teachers of mathematics the condition that mathematics teachers should have a qualification in mathematics.

Mrs. Williams: Obviously notice would have to be given of the requirement. The Government are embarking first upon courses to enable mathematics teachers to retrain—that is, those who are not specialised—so that for the first time we can begin to provide schools with those who are trained in mathematics. I agree that there are now many pupils without an understanding of or liking for mathematics, but one of the reasons for this is that many mathematics teachers are not qualified in maths. We are trying to remedy that situation as quickly as possible.

Mr. Freud: My right hon. and hon. Friends welcome the Secretary of State's eminently sensible statement. I echo the comment made by the hon. Member for Chelmsford (Mr. St. John-Stevas) and express our deep regret that we cannot have a fuller debate on it.
May I raise a few topics? I am sorry that the right hon. Lady made no mention of nursery education in rural areas. Will she look into and give support for play buses such as we have in Cambridgeshire, which are enormously successful? Will she also look into an extension of the system of works experience for those in the last two or three years of secondary education? Finally, in view of the greater co-operation that there is to be between her Department and the teachers, I wonder whether the Secretary of State

would seek to reduce the number of teachers' unions.

Mrs. Williams: The hon. Gentleman will see that there is in the Green Paper a short section on nursery education—although the Green Paper is primarily about schools. However, we are hoping to issue a joint circular with the Department of Health and Social Security about the under-fives. As the hon. Gentleman will appreciate, one of the problems in the past has been the division of responsibility for the under-fives between day nurseries and nursery schools, which are the responsibility of the Department of Health and Social Security and of the Department of Education and Science respectively.
As regards pay buses, my hon. Friend the Member for Lincoln (Miss Jackson), who is responsible for nursery school education, has been looking into the whole question of school transport and will certainly pay close attention to this. I shall look at the matter of play buses, to which the hon. Member for Isle of Ely (Mr. Freud) referred.
We are looking for closer links between schools and further education colleges for pupils during their last three years at school. Pupils should be told about the courses available and encouraged to visit the colleges. Careffs education should start at the age of 13 and we have indicated that work experience and observations are an appropriate part of the latter years at school.
No doubt the hon. Member for Isle of Ely will offer his conciliatory services in the matter of teachers' unions, but I feel that the matter is rather beyond my capacity.

Mr. Flannery: I have not read the document so I shall confine my comments to what I have heard today. Did the Secretary of State refer to what amounts to the sacking of any incompetent teachers? There are many incompetent doctors, engineers and it has even been rumoured, hon. Members, but I shall not develop that theme. Does not my right hon. Friend agree that at this time, when there are 20,000 new, young, qualified teachers, some of whom have not yet received their certificates because they have not had a chance to work for a probationary year in some areas, a witch-hunt against teachers could be unleashed


if we were not careful and if we did not deal with the matter in a sensitive way?
On the subject of curricula, did I hear aright when the right hon. Lady said that parents and industrialists would be invited to help form curricula, there having been a generalised discussion, and that the policy would be formulated by the local education authorities on the basis of such discussions?

Mrs. Williams: I draw the attention of my hon. Friend to paragraph 6.36 of the Green Paper, which mentions that a small minority of teachers should probably not be in the profession. It goes on:
In none of these respects is the teaching profession unique; much the same could be said of other professions.
We are proposing that where a teacher finds it difficult to continue teaching—and examples of extreme stress among teachers have been brought to our attention by the teachers' associations—there should be reasonable regulations for early retirement. We are working on these regulations with the teachers' associations to enable such teachers to leave the profession if they wish. In the document my hon. Friend will find all the regulations that we have been discussing with the teachers' associations, and I do not think that these would release a witch hunt, because that is something that we have no desire to have.
In the course of discussions at regional conferences and since, in discussions with employers and trade unions, we have talked about links between schools, industry and the community, the transition to work, and work observation and experience. Our discussions about the curricula review will be held with local authorities and teachers. It is when the matter goes beyond the curricula that discussions with the wider community in the shape of parents and industry should be involved.

Sir T. Kitson: Is the Secretary of State considering in the Green Paper whether to set up again a working party on school transport? Now that school transport is being withdrawn in a number of areas, the roads and the conditions that we are asking pupils to face in walking to school are worse than when the working party last met. The right hon. Lady mentioned pay buses. What is the position there?
Can something be done about getting children to school in difficult areas?

Mrs. Williams: Last year there were discussions on this matter following which my Department put to the local authorities certain proposals designed to bring about a more satisfactory system of school transport. Those proposals were not acceptable, primarily because some parents would have had to pay more to enable others to pay less. My Department is still exploring this with the local authorities to discover whether we can amend the proposals to achieve a more satisfactory result than the present one, which is, in fact, a gamble.

Mr. R. C. Mitchell: The Secretary of State quite rightly emphasised the importance of in-service training. What further powers does she propose to take to deal with those reactionary local authorities, like Hampshire, which are mostly Tory controlled and which have a bad record of in-service training?

Mrs. Williams: I have been advocating wherever I can the importance of in-service training. The change in the school population, with a fall in the number of pupils of primary age and a rise in the secondary age group, has made it not only desirable but essential that we should improve the quality of education. If the present unsatisfactory position continues, I shall have to explore other ways of ensuring that this vital training takes place.

Mr. Forman: Since at short notice one can ask only impressionistic questions, may I ask whether the Secretary of State is satisfied that the net result of the Green Paper will be to give more vocational emphasis to the school system and to put more emphasis at the younger end of the school system rather than the older end? Will it give parents more say and influence over a matter that is of deep concern to them?

Mrs. Williams: I hope so, because that was certainly intended to be the case. The hon. Gentleman spoke of a more vocational flavour and that is one of the main things that we want to obtain. We need to infuse into our children a greater sense of the society in which they are being brought up and in which they will participate. That should be so even


for children who will not be taking vocational courses and who will be going on to higher education. They should be made much more aware of the importance of industry and its significance within the economy than they are now.

Miss Joan Lestor: Bearing in mind what my right hon. Friend has said about the issue of the joint curriculum and the references in the Green Paper to play groups, would she confirm whether she sees play groups as a permanent feature of the under-fives service in this country or as a pro tem one pending the expansion of nursery education? Has my right hon. Friend taken into account the fact that, since nursery education is not compulsory, her hopes for expansion, as outlined in the document, must rest on the attitude of local authorities? What is she doing to ensure that they will fulfil her hopes in this direction?

Mrs. Williams: An allocation for nursery building for 1978-79 will be announced next week. The amount is not as big as we should wish, but we shall be able to continue with the expansion of the nursery programme, particularly in the inner cities and conurbations. That will take the lion's share of the available cash and we shall not be able to expand nursery education as rapidly as we should like in the less stressful areas. I am trying to work with the Department of Health and Social Security to see that provision is made for the under-fives as a whole and particularly for hard-pressed families who resort to child minders because the times of nursery schools do not meet their needs.
I see the pre-school play group movement as a useful voluntary addition, but it cannot replace the necessity for a systematic programme of provision for the under-fives.

Dr. Hampson: Is the Secretary of State aware that the Prime Minister's speech, like the Green Paper, stressed the contribution that education can make to the productive capacity of the country? Yet there are only two pages on this subject within the 50 pages of the Green Paper. The right hon. Lady has talked about proposals. The Green Paper, in this area, proposes nothing and talks only about possibilities. It says that the Government are encouraged by-—not encouraging—the

development of link schemes. Are not link schemes particularly vulnerable because of the cut-backs in local authority expenditure and are they not suffering acutely? The Green Paper calls for liaison between schools and universities as a possibility for further study, but the grants system is loaded in favour of advanced and degree courses against OND and technical courses. The Green Paper maintains an artificial division between the school and post-school sectors, and unless the right hon. Lady is prepared to grapple with this specific type of problem, I am afraid that the profession will regard this Green Paper as of limited value.

Mrs. Williams: Probably the hon. Gentleman has had time only to look at one part of the document. Perhaps I can refer him to one or two of the direct associations and to what we have said about industry. We have said that the curriculum should reflect the industrial needs of this country, that teachers should be given preference if they have had experience in the world outside of education. We have said that there should be a special programme for mature students entering education who have experience in industry and elsewhere. We have also said that there should be the fostering of closer links between schools and local firms—with trade union interests as well as with employers. We have said that there should be an encouragement of the link programmes which, for example, Essex, Leicestershire and other councils undertake. [Interruption.] The hon. Gentleman knows as well as I do that in our system of education the direct control of the schools is a matter for the local education authorities. Within the powers that exist in the Department of Education and Science we are undertaking in all possible directions the building of these much closer links, which we believe to be essential

Several Hon. Members: Several Hon. Members rose——

Mr. Speaker: Order. I shall allow questions and answers to run for a few minutes more, but I must say that long questions and answers will limit the number of hon. Members who can be called.

Mr. Tom Ellis: Can my right hon. Friend say whether her Green Paper reflects, at least in part, advice given by the various main teacher unions and, if


the advice was not the same in all cases —as might appear to be the case from public pronouncements since some unions appear to be more concerned with the quantitative aspects, such as pupil-teacher ratios, and other unions with qualitative aspects—can she confirm that the Green Paper comes down heavily on the side of those unions believing that the qualitative aspect is the more important, given the present position of our educational arrangements?

Mrs. Williams: We have had many consultations with the teachers' associations on this matter. There is no doubt about that. A good deal of the Green Paper reflects their thinking, although in parts it does not. We have to put the greater emphasis on the qualitative aspect now for the very good reason that the population in our schools is falling and in future years the number of dependants that each individual child will have to bear as he comes of age will be considerably greater than in the past. That means that each child must be educated to the limits of his willingness and capacity.

Mr. Alexander Fletcher: Is the right hon. Lady aware that the Secretary of State for Scotland has not seen fit to promote the "Great Debate" in Scotland, despite the equal amount of public concern about declining educational standards and deprivation of freedom of choice? Since we understand that the Green Paper must exclude Scotland, is this another example of a relaxation of collective Cabinet responsibility? Will the right hon. Lady lend a hand in shaking the Secretary of State for Scotland out of his complacency about Scottish education?

Mrs. Williams: There are many roads to truth. As I understand it, my right hon. Friend the Secretary of State for Scotland has chosen the path, which has also been adopted before in England, of various commissions being set up to look at particular aspects of the educational system. This is a rich tradition in England, too, with Crowther, Plowden and others. That has been my right hon. Friend's choice of the best way to look at the educational system in Scotland.

Mr. Bryan Davies: Will my right hon. Friend take this opportunity first to nail the obscurantist proposition of the Opposition Front Bench that concentration on the fact of selective schools with a narrowly-based academic criteria has nothing to do with the issue of improving the curriculum for the majority of schoolchildren in this country? With regard to producing a more constructive proposition to that end, will she define more clearly the nature of discussion with the local authorities? Will she accept that those groups which have the right to participate with local authorities and discuss the curriculum and make representations about it ought also to have the right to participate on the school governing bodies which control the schools.

Mrs. Williams: I can confirm that my hon. Friend is right about what he said in the first part of his question. As to the second part, I believe that the curriculum review is an essential part of the success of a comprehensive system. As individual areas go comprehensive, we sometimes find—not always—that there are grave curriculum weaknesses in the successor schools to the secondary modern schools. In some cases no teacher is able to teach science to 0-level or no teacher is adequately able to teach modern languages because the schools were deprived, in the curriculum sense, when they were secondary modern schools. It is part of the concept of comprehensive reorganisation that the content of the school curriculum should reflect equality of opportunity and choice as well as the name outside the school gates.

Mrs. Kellett-Bowman: If the right hon. Lady is concerned with the standard of teacher training may I ask her to be good enough to restore the cut of 50 places which she has suddenly and quite inexplicably imposed on St. Martin's Teacher Training College, Lancaster, which is one of the finest teacher training colleges in the country? Secondly, she will be aware that there have been difficulties with reorganisation in the Lancaster area. Does she appreciate that the local elections seem to show that most people would like to preserve the status quo but, being law-abiding, they are attempting to implement the law as it stands? Does she further appreciate


that people in Lancaster have now come forward with a scheme for the possible amalgamation of the girls' and boys' grammar schools, making one 11-18 school? Since this will require further study, may I ask the Secretary of State whether she will allow extra time for this study?

Mrs. Williams: Dealing with the first point raised by the hon. Lady, I do not think that I can re-open the college of education settlement, which was reached with a great deal of difficulty and care. As to the second point, we shall certainly look at any proposal for genuine secondary reorganisation. However, I could not promise now to give the extra time. I would have to be persuaded that the authority needed it.

Dr. Bray: My right hon. Friend has undertaken a lot of important follow-up work from this report. In view of the great difficulty many young people are facing in making the transition from school to work, will she give priority to this problem? The Government have undertaken many detailed innovations, following the report "Young People at Work", to deal with problems where the interface with the schools has not been very well worked out. Can my right hon. Friend give priorty to this in the next few months?

Mrs. Williams: I assure my hon. Friend that this is one of the things about which we feel strongly. The Departments of Education and Science and Employment are working closely together on this question of transition. I regard this as one of the more unsatisfactory aspects of the educational system. We are attempting to improve it.

Mr. St. John-Stevas: On a point of order, Mr. Speaker. May I ask your indulgence, while in no way seeking to usurp your function? Because of the extraordinary situation concerning this Green Paper and the fact that we shall be dispersing for the recess without an opportunity to debate it, may I ask you to allow questions to run on for a little longer so that those hon. Members who wish to may have their say? Otherwise, we shall have a situation in which the only people who cannot take part in the

"Great Debate" are those in the House of Commons.

Mr. Speaker: Order. The hon. Gentleman might belong to the A-stream, but that is a difficult one. He must leave this matter to my discretion.

Mr. Wyn Roberts: With regard to the section in the Green Paper entitled "Welsh in the curriculum of the Schools of Wales" and the call for clear language policies, formulated by authorities in consultation with parents and teachers, may I ask the right hon. Lady to assist in achieving such an objective by ensuring that her right hon. and learned Friend the Secretary of State for Wales issues clear guidelines to authorities about the form that consultations should take and the amount of regard that should be given to them by the authorities concerned? Is she aware that the general complaint on the part of parents and teachers alike is that the consultative machinery is inadequate and that insufficient attention is paid to their views?

Mrs. Williams: I understand that my right hon. and learned Friend the Secretary of State for Wales is embarking upon specific consultations about the Welsh language in Wales. In addition to that, he is prepared to consider making additional grants for bilingual education, if he has powers to do so. We shall be discussing with the local authorities in Wales the whole question of the role of the Welsh language in Welsh schools.

Mr. Gerry Fowler: Will my right hon. Friend accept that many of us accept her stress upon the importance of additional work experience and work observation in the curriculum and the suggestion that it should be internationally oriented, outward looking and should include some careers counselling? Will she also accept that this is bound to lead to further overcrowding of the curiculum, which will put more pressure of minority subjects which, alas, includes all modern languages, and will make it more difficult to get a common curriculum throughout the country? Does she accept that this will not be achieved until it is recognised that school education is for everyone the foundation of subsequent learning, how ever it be undertaken—perhaps at the workplace—and is not the end of learning leading


on to work, after which learning is never undertaken again?

Mrs. Williams: My hon. Friend is an outstanding apostle of the concept of continuing education. I say to him at once that that must be the goal of any progressive system of education, although we are a long way from that. I recognise what he said about there being a certain conflict between the overcrowding of the curriculum and the need for the curriculum to reflect modern needs. I believe that he recognises that in some teaching of existing subject matter it would be possible to bring in more relevant, practical and more contemporary examples, for instance, in geography, history and maths. That is one of the way in which we might be able to square this circle.

Mr. Speaker: If hon. Members will cooperate with me and ask very brief questions, I may be able to call every hon. Member who was standing originally. However, if anyone asks a long question, someone else will be cut out.

Mr. Stokes: Will the Secretary of State assure us that the special treatment for immigrant children that is mentioned in the report will not be at the expense of British children, as there are considerable fears about this?

Mrs. Williams: There are, of course, some positive measures taken for immigrant children through section 11 of the urban programme. I believe that it is right and proper that additional sums should be made available to children, British or otherwise, who are handicapped in any way. It is a plank of our policy that there should be positive discrimination for disadvantaged children wherever they come from.

Mr. Newens: While concern about the standards of education is to be heartily welcomed and is, in some respects, long overdue, is my right hon. Friend aware that this objective cannot be attained while resources devoted to education are being reduced? Therefore, will she agree that it is necessary to reverse some of the cuts that are being demanded by the Opposition and made by Conservative-controlled councils throughout the country? This is the only way we can attain the objectives that we seek in this document.

Mrs. Williams: There are some changes that can be made without additional resources, but many cannot. The document recognises the importance of moving towards an improvement in teacher-pupil ratios as soon as we can. Many local authorities do a great deal for education, but there are others that do less than I would wish.

Mr. Durant: While welcoming the steps towards offering career guidance at the age of 13, may I ask the Secretary of State whether she is convinced that this is early enough? Will the Government make special provisions for more teachers of careers guidance, which has a very low priority in a lot of schools?

Mrs. Williams: In a sense it is never early enough to start careers guidance, but 13 is a practical limit at which to start. The Secretary of State for Employment has announced that there will be additional careers officers in the careers service and the Green Paper will endeavour to support an increase in the number of careers teachers in order to complement this.

Mr. Arnold Shaw: Will my right hon. Friend agree that teachers have played a leading part in any advances in the curriculum? Will she assure us that in any partnership with industry or any organisations along the lines suggested parents will play a larger part? Can we be assured that this will be a reality in future and not simply an election gimmick?

Mrs. Williams: It is a reality already. We have already tried to bring parents in, but one of the great problems is that there are no clear representative organisations of parents as there are of teachers, local authorities and other bodies. Therefore, consultation is not as satisfactory as it is with highly organised associations. We are doing everything we can to inform parents better, to give them access to the schools and to encourage them to engage in the management and organisation of the schools. We recognise that the modern generation of parents is better educated and therefore expects to be involved with the education of its children in the State sector.

Mr. Ian Lloyd: The Secretary of State will expect me to endorse warmly what she has said about the relationship between schools and industry, and I do


so. But in one respect this Green Paper is absolutely astonishing. From cover to cover it contains not one mention of the word "computer". Have her advisers not told her what is happening in Japan and some other countries where there is education of the whole society in computer literacy? If we do not do this, much of the other education in relation to industry and industrial needs will be almost irrelevant.

Mrs. Williams: Although the Green Paper does not mention the word "computer", it often mentions the word "numeracy". While this is not a particularly attractive word, it means, in effect, having the same kind of under standing.

Mr. Alexander W. Lyon: The paucity of the section on special treatment of the ethnic minorities seems to be in marked contrast to the prolixity of the rest of the document. Why is there no indication in the review of section 11 of the special needs of Asian children as distinct from those of West Indians? Also, why is there no mention of teaching a language in the home to ensure that when a child enters a school he or she is on the same level as indigenous children?

Mrs. Williams: At no point does the document mention either West Indians or Asians. It says "ethnic minorities" and this includes Asians as well as West Indians. In addition, we have only recently sent out a draft circular for consultation on the whole subject of positive discrimination for ethnic minorities. This asks how many ethnic minority teachers there are and how many ethnic minority children are in institutions for the educationally subnormal. We have included the Asian community in this consultation document as well as the West Indian community. This is the first time this has been done and I would have thought that my hon. Friend with his interest in this matter would welcome it rather than criticise.

Mr. Peter Bottomley: It is unfortunate that the Secretary of State should suggest that hon. Members on this side of the House are interested only in children who attend private schools. We take that very bady coming from her. Will she explain why the Green Paper stresses the special needs of minority groups but does not

mention one minority category—that of the academically able? Will she provide positive opportunities for these children to reach their full potential within or without the comprehensive system? Will the Department also give attention to the problems of mixed ability teaching, truancy and the question of homework, which seems to have different settings around the country?

Mrs. Williams: It is never easy to please Parliament. The hon. Member has called for a good deal more to be done and others have said that there is too much in the document. There will be a paper next week on the exceptionally gifted child, preceding the international conference in November which will cover the whole range of educational systems, from the United States to the Soviet Union, and in which we shall participate. There is to be a meeting about comprehensive schools to consider questions of size, the style of teaching and streaming and so on. In many ways this will be a more detailed study than the Green Paper could ever be and the hon. Member will have every opportunity to see the working papers of that meeting.

Mr. Andrew F. Bennett: Will my right hon. Friend consider increasing the educational maintenance allowance to ensure that children are not denied a sixth-form education because of their poverty?

Mrs. Williams: My hon. Friend has been a great champion of the educational maintenance allowance. We are looking at this very closely in conjunction with the Manpower Services Commission grants for the employment field. I should point out that the Green Paper is not meant to be about the post-16 period, which raises a different set of considerations. It is meant to be about the compulsory school period. Discussions about the 16-19 period will include other Departments as well as mine.

Dr. Boyson: Is the Secretary of State aware that many people will feel that there is very little positive in this document? Instead of being something which has ended a year of so-called discussions, it seems to be something which starts more discussion. It contains more suggestions than definitions. While welcoming the Government's belated and


half-hearted conversion about the disaster of child-centred progressive education, which we have been advocating for some time, may I suggest that the Secretary of State allows some time for self-examination and stability in schools?
There is no self-examination and stability allowed by the Labour party's doctrine and dogma on comprehensive schools, regarding Birmingham, the Mary Datchelor School or St. Marylebone Grammar School for example. Some of us feel that within this document there are statements, alongside many others Blade on other occasions, which indicate the beginning of a vendetta, not just against grammar schools, but against the sixth-forms of comprehensive schools, which is shown in the traditional approach to the sixth-form.

Mrs. Williams: I must say that the hon. Gentleman's idea of a positive approach to education has always seemed to me to go negatively back a generation. I cannot see how advocating children leaving school at 14, rigid examinations and rigid selection could conceivably be described as a suitable education system for the kind of society this country now is. I have never understood that aspect of the hon. Gentleman's approach.
I must say, in addition, that the whole purpose and belief of the Government side of the House is that we can combine non-selective schooling with high standards, and that is what we are determined to do.
Finally, with regard to the hon. Gentleman's extraordinary remark about the sixth form, I should like him to give some evidence for that. What we have said is that sixth forms must be viable and must be able to offer a reasonable range of subject choices. We have never suggested that the sixth form is dead, but merely that it must be fair to the children in it.

Orders of the Day — FINANCE BILL

As amended (in the Committee and in the Standing Committee), further considered.

Schedule 6

VALUE ADDED TAX

4.41 p.m.

The Financial Secretary to the Treasury (Mr. Robert Sheldon): I beg to move, Amendment No. 77, in page 60, line 20, at end insert—
'12A. For section 45 of the 1972 Act (meaning of "business" etc.) the following section shall be substituted—

"Meaning of business etc.

45.—(1) In this Part of this Act "business" includes any trade, profession or vocation.

(2) The following (without prejudice to the generality of anything else in this Part) are deemed to be the carrying on of a business—

(a)the provision by a club, association or organisation (for a subscription or other consideration) of the facilities or advantages available to its members; and
(b)the admission, for a consideration, of persons to any premises.

(3) Where a body has objects which are in the public domain and are of a political, religious, philanthropic, philosophical or patriotic nature, it is not to be treated as carrying on a business only because its members subscribe to it, if a subscription obtains no facility or advantage for the subscriber other than the right to participate in its management or receive reports on its activities.

(4) Where a person, in the course or furtherance of a trade, profession or vocation, accepts any office, services supplied by him as the holder of that office are treated as supplied in the course of furtherance of the trade, profession or vocation.

(5) Anything done in connection with the termination or intended termination of a business is treated as being done in the course or furtherance of that business.

(6) The disposition of a business as a going concern, or of its assets or liabilities (whether or not in connection with its reorganisation or winding up), is a supply made in the course of furtherance of the business."•

Mr. Deputy Speaker (Mr. Bryant Godman Irvine): With this we are to discuss the following:
Amendment (a) to the proposed amendment, to leave out subsection (3) and insert—
'(3) Where a non-profit-making body with aims of a political, trade union, religious,


patriotic, philosophical, philanthropic or civic nature provides services or goods closely linked thereto for the benefit of its members in return for a subscription fixed in accordance with its rules such supply shall be an exempt supply.'.
Amendment (b) to the proposed amendment, to leave out from "only" in subsection (3) to the end of the subsection and to insert,
'by virtue of the supply of services and goods closely linked thereto for the benefit of its members in return for a subscription fixed in accordance with its rules; provided that this exemption is not likely to cause distortion of competition'.

Mr. Sheldon: This amendment reintroduces provisions that were removed from the Bill in Standing Committee. What we have done in the amendment is to bring back a revised Section 45, to be incorporated in the Bill—an amendment to the Finance Act 1972—which includes different provisions concerning clubs and associations.
In Standing Committee a number of hon. Members felt that although the criteria to meet the Sixth Directive obviously had to be rather different from the criteria that existed beforehand, nevertheless, the effects of these new criteria were uncertain in their impact on certain clubs, societies and institutions. That complaint is clearly justified. Whenever one changes the basis of legislation, in the form in which it is presented, there will obviously be a change in definitions. Every club, institution or association, over a period of time, is able to devise the kind of system that suits it best within the definition set by legislation; and even if it is not so able to select, at any rate it comes to live with that legislation. When that legislation changes, it has to start the process afresh I hope that what I say this afternoon will help to clarify certain matters.
The hon. Member for Guildford (Mr. Howell) will know that we have had a number of consultations, which I have tried to carry out in the spirit in which he put the point in Standing Committee. Perhaps I may refer to what he said then. Referring to the actions of the Opposition, he said,
What we are doing—I hope that that was made clear then but if not I shall make it clear now—is proposing that Ministers should bring forward on Report a new and more full explanation of the criterion on which they intend to proceed. We shall look for that information on Report in one form or another,

so that some of the worries that were eloquently expressed on both sides of the Committee can be stilled. I hope that that makes clear our general approach to what is obviously a difficult and complicated area of law making."— [Official Report, Standing Committee D, 26th May 1977; c. 366.]
It is in that spirit that I carried out a number of consultations, and a Press notice was made available and a draft order was prepared for the consultations with the various associations, societies and institutions.
This change is a consequence of the Sixth Directive. Where large matters were discussed and where compromises were reached, we feel that we did particularly well in those exchanges and compromises. We obtained what was the most important matter open to the British people—the maintenance of our zero rating, covering, as it does, a wide range of activities. A number of other concessions were made by other countries—I assume and believe —in areas of major importance as far as their individual problems were concerned and the new taxes that they had to accept.
What we have here is an attempt to ensure that within the spirit of the Sixth Directive we are able to make as large a concession to practice as is possible. What happened under the legislation that came before the House for approval in 1972, and was approved, was that those conducting a trade, profession or vocation had in practice the option to decide whether they should be taxable or not taxable. The Sixth Directive does not permit the continuation of the option for taxation which was provided under Section 45 of the Finance Act 1972. Under the directive, all are to be within the scope of the tax.
Perhaps I can show the way in which this affects the two main areas of interest, as expressed in Standing Committee.
The majority of trade associations are not disadvantaged. More than 750 have chosen to be taxable. The disadvantage to traders whose outputs are not exempt or partly exempt of the tax on the subscription, can easily be exaggerated, bearing in mind that we are talking about 8 per cent., and that it is only 8 per cent., in many cases, on the benefit which are receivable.
There is a particular dilemma that the learned societies have tried to resolve in the best way available. That is that existing legislation allows the exemption


option only for an organisation for a trade, profession or vocation, whereas membership of learned bodies is open to those interested in the work of the society, so that they did not meet the criteria of the legislation that was enacted. But there was a discretion given, and this seems to have gone through over the years without being questioned. Therefore, they are not strictly exempt within the terms of the existing legislation.
.
The problem that we had in the implementation of the Sixth Directive, where we tried to keep the existing system open so that the option could still be retained, is that we were unable to get the other member countries to accept the stand that we wished to make. The problem is that a number of these societies have certain club facilities. They vary. Some provide benefits to their members and some do not.
The test that we might usefully make is that where the membership is customary —that it is not necessarily compulsory for the profession or employment of the person concerned—no VAT would be required. Also, there would be another test that where the facilities that are available are not those for which VAT would otherwise be chargeable. In other words, if there is a particular benefit to the individual concerned, they would be chargeable, but if the benefit that they seek to assert is one to society as a whole, which covers most of the learned societies, the VAT would not be charged. Of course, there is provision for further examination of these matters through the tribunals, in a way that hon. Members will understand.
However, the present position of the vast majority of clubs and associations will remain unchanged. I think that what we have seen here is that there has been an understanding of the particularly important role of these societies, which I believe has always been one of our great strengths.
We have not yet finally decided the shape of the order. That is still open to consultation in the way that I indicated earlier. Any further points which arise, either in debate or as a result of representations made, can be considered in time for further inclusion or further

changes in the order that will be produced in due course.
It is right to protect and to preserve these institutions. They have formed a valuable part of our heritage. I intend within the terms of the Sixth Directive to do everything possible to assist these clubs, societies and institutions.

Mr. Peter Rees: I beg to move, as an amendment to the proposed amendment, Amendment (a), to leave our subsection (3) and insert:
'(3) Where a non-profit-making body with aims of a political, trade union, religious, patriotic, philosophical, philanthropic or civic nature provides services or goods closely linked thereto for the benefit of its members in return for a subscription fixed in accordance with its rules such supply shall be an exempt supply.'.
In moving the amendment I declare a whole range of interests, since I belong to a number of bodies which may come within the scope of the amendment moved by the Financial Secretary—bodies which may be affected, I hope favourably, by Amendments (a) and (b).
I recall in the debate in Committee that the justification for the amendment which was then voted down was purely that it was attempting to embody in domestic legislation the provisions of Article 13 of the Sixth Directive. The debate ranged hardly wider than that. The general principles which might be adduced to support the imposition or non-imposition of VAT over the various activities was hardly canvassed. The Committee voted down the amendment which the Financial Secretary, with his accustomed grace and facility, was pressing on us, on the ground that the amendment was too vague and indeterminate in its terms and would inevitably have to be enforced in individual cases by a battery of orders which were not then before the Committee.
Doing its proper duty and taking a nonpartisan view of the matter, the Committee—the Conservative Benches being supported by Labour Members—decided that it was its duty to impress upon the Government the need to be a little more precise with their measures.
The Financial Secretary now commends to the House Amendment No. 77. Its only justification must surely be that it is an accurate, faithful translation into domestic United Kingdom law of the


provisions of Article 13 of the Sixth Directive.
Since the Financial Secretary has been a little coy in referring the House to the provisions of Article 13, particularly paragraph (1), I hope that I shall be forgiven if I refer the House to them. That article exempts from VAT the
supply of services and goods closely linked thereto for the benefit of their members in return for a subscription fixed in accordance with their rules by non-profit-making organisations with aims of a political, trade union, religious, patriotic, philosophical, philanthropic or civic nature, provided that this exemption is not likely to cause distortion of competition.
We could have an interesting, if perhaps slightly profitless debate on the precise meaning in this context of
political, trade union, religious, patriotic, philosophical, philanthropic or civic nature.
The right hon. Member for Down, South (Mr. Powell), with his vast erudition, particularly his knowledge of the Greek language, will no doubt be able to enlarge our horizons on that matter. I do not, however, wish to detain the House over long with these fine questions of construction. I point out only that under Article 13 it is merely necessary for a body or organisation to demonstrate that it is of such a character. If it is, the mere fact that it provides services and goods closely linked with its predominant object for the benefit of its members in return for a subscription, will not expose that subscription to an imposition of VAT. The only limitation on that exemption—I emphasise that this is an exempting provision—is that the exemption should not be likely to cause distortion of competition.
One would have thought that the Financial Secretary would concentrate on that aspect of Article 13, to demonstrate that the amendment that he moved is designed to ensure that though the general exemption will be effective, it is drawn up in such a way that there would be no distortion of competition.
I hope that the Financial Secretary will forgive me for saying that his argument is singularly opaque. He congratulated himself on the fact that a whole range of organisations would not be affected one way or another. He adduced two entirely new criteria which I shall have to examine more closely in Hansard tomorrow. It will be difficult to know how

to apply them in a given situation. Since I am professionally concerned with such matters I must say that I would find it difficult to advise clients on the basis of the test which the Financial Secretary has adduced so far. As always, the Financial Secretary is prone to rely on the extra-statutory concession. So I hope, Mr. Deputy Speaker, that if he is fortunate enough to catch your eye at the conclusion of the debate, he will enlarge on the criteria which are to be applied extra-statutorily by the Commissioners of Customs and Excise.
Amendment (a) seeks to reproduce with much greater exactitude and fidelity the provisions of Article 13 of the Sixth Directive. The amendment says:
Where a non-profit-making body with aims of a political, trade union, religious, patriotic, philosophical, philanthropic or civic nature
—the House will discern at once that 1 follow with complete precision the words of Article 13—
provides services or goods closely linked thereto for the benefit of its members 
—again following exactly the provisions of Article 13—
in return for a subscription fixed in accordance with its rules such supply shall be an exempt supply.
It is only in the last seven words that I diverge from Article 13. But I reproduce precisely the sense and intention of Article 13.

Mr. J. Enoch Powell: How does the hon. and learned Member construe the word "thereto"? Is it to be construed as referring to services or to aims? It appears to me to be ambiguous. It could mean services or goods closely linked to the services provided, or it could mean services linked to their aims, or goods closely linked to their aims.

Mr. Rees: This is a very valid point which I take. I could plead in extenuation that I am only following the wording of Article 13.

Mr. Powell: That is typical of EEC law.

Mr. Rees: The right hon. Gentleman is entitled to make that point. He rubs his hands and says "Once again I have caught out the draftsmen at Brussels at their singularly inept job of framing legislation for the Community." I do not make such a cheap point myself,


although I am not conversant with the intricacies of Continental draftsmanship. Being a little circumscribed in my outlook, I prefer the quality of English draftsmanship and construction, although at times I have said hard things of the draftsmen and drafting in this House. None the less, on this occasion I shall not enlarge on that theme. I offer the House my construction, for what it is worth, which is that the services or goods are to be closely linked with aims of a political, trade union, religious, patriotic, philosophical, philanthropic or civic nature, of the non-profit making body concerned. This provision may be productive of litigation in future, but that is often a consequence of many of the provisions we enact.
5.0 p.m.
Were it not for these ambiguities, my hon. Friend the Member for Eastbourne (Mr. Gow) and I might be deprived of much remunerative professional work. Perhaps that is one reason for my declaring an interest, although it was not of that kind that I thought originally. But I hope for the moment to have satisfied the right hon. Member for Down, South.
The only point at which I substantially depart from Article 13 is that I have not included the words
provided that this exemption is not likely to cause distortion of competition".
My hon. Friend the Member for Guildford (Mr. Howell) has included those words in Amendment (b). Although my name is attached to both, I confess a partiality to Amendment (a) because it might be difficult for the courts to apply those words.
The only respectable argument that the Financial Secretary can advance in this case for asking the House to reject Amendment (a) is that it might in a given circumstance lead to distortion of competition, but so far I have heard no argument from him which would lead me to prefer Amendment No. 77 to the same amendment as amended by Amendment (a).
I cannot conceive, for instance, that there will be distortion of competition because various bodies concerned with the ownership of land, such as the CLA or the NFU, might be able to claim

exemption in respect of their subscriptions. If the Anglers Association were to achieve exemption from VAT as a result of Amendment (a), I cannot conceive that that would lead to any distortion of competition.
If, for example, the National Union of Students were to be exempted from VAT by Amendment (a) but not by Amendment No. 77, I cannot conceive that that would lead to distortion of competition. I pick out the NUS at random. I have not been approached by any of its representatives, and perhaps it has not applied its collective mind to the problem. Does the Financial Secretary feel that its subscriptions will be caught for VAT by Amendment No. 77? Are the various old-age pensioners' associations likely to be caught?
I cannot conceive that if any of those worthy organisations is let out by Amendment (a), that will cause distortion of competition. The amendment reproduces with fidelity the provisions of Article 13 and will not lead to distortion of competition and on that basis I commend it to the House.

Mr. Deputy Speaker: I should point out that hon. Members will be free to discuss both Amendment No. 77 and the two amendments to it, one of which, Amendment (a), has now been moved. I should add that this will in no way prevent another hon. Member, should he wish to do so, from moving Amendment (b).

Mr. David Howell: I am not clear, Mr. Deputy Speaker whether you wish me to move Amendment (b) now or later, but I should prefer to speak following my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) to the sense of Amendment (b). It may be that with your help that amendment can be formally moved later, should that be necessary.
Amendment (b) has some similarities to Amendment (a). As the Financial Secretary reminded us, we recognised in Committee that we were dealing with a matter of considerable complexity—some would say even of deterrent complexity—in that an attempt was being made to weave into the language of our statute book the words and intentions of Article 13 of the Sixth Directive.
What is at issue in this debate is the question whether the Financial Secretary and his advisers are following this matter through in a way calculated to minimise the difficulties and to be most effective in achieving the ends, or whether they could do better. We felt in Committee that they could do better—that issues were left unresolved—and we looked for a replacement, on Report, of what was in the earlier draft of the Bill. That replacement has now appeared and the fact that there are amendments to it shows straight away that we are still far from happy about what the Government propose.
I want to confine myself to three sets of questions so as to indicate our continuing concern about the problems that seem to be raised for many organisations by Amendment No. 77.
The first question is the basic one. Have the Government interpreted the directive in the right way? Have they, in the words used by the Financial Secretary in correspondence, "used to the full" the wording of the directive'? We still believe that they have not. That is one reason why we have sought in Amendment (b)—and no doubt why my hon. and learned Friend has sought in Amendment (a)—to stick more closely to the wording of the directive, even though, as we have learned from the debate so far, the meaning of that amendment itself is not immune to query.
We still feel that in Amendment No. 77 the Government and their advisers are taking too rigid and narrow a view of what the directive intends. I do not know why they should be doing that, although I shall describe some possible reasons in a moment. They seem to be tying the situation down in a way that the directive does not strictly require.
Secondly, are the Government interpreting the directive in line with its interpretation, and the application of that interpretation, in other member countries of the EEC? Again, making what comparisons we can between bodies in this country and apparently similar bodies elsewhere—one example is the National Farmers' Union—we believe that what is proposed for this nation is uniquely tight and circumscribed.
Are the Government really sensitive to the way in which this directive is interpreted elsewhere, or are we being over-

zealous in rushing in to bat first and insisting on interpreting it to the letter, not only in the EEC sense but in the sense of the most rigid and narrow interpretation within our own law?
We seek assurances and explanations from the Financial Secretary why bodies in this country will be caught by the requirement to charge VAT on their subscriptions when similar bodies in other EEC countries do not appear to be caught by the directive.
The fundamental question is whether Amendment No. 77 and the draft order make the position clearer than we felt it to be in Committee. The Financial Secretary has elaborated on the draft order and spoken of certain tests that he believes should apply over and above what is intended in the directive. The directive includes the words that are repeated in Amendment (b):
provided that this exemption is not likely to cause distortion of competition".
That seems a fairly clear and basic statement of the criterion.
However, in correspondence with my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), the Financial Secretary produced another way of saying what I think is the same thing. He said:
the new subsection (3) to section 45 which we are proposing on Report would put outside the scope of tax organisations of a kind illustrated in the Directive Article 13A.1(1)—if the subscription is in fact a donation not used for the benefit of members exclusively".
Is that the same as what is suggested in Amendment No. 77, where the words are a little different? Subsection (3) reads:
if a subscription obtains no facility or advantage for the subscriber other than the right to participate in its management or receive reports on its activities".
In his letter the Financial Secretary offered two tests of whether bodies would be exempt. They were whether membership was customary and whether facilities for services were for the benefit of society as a whole, implying, I imagine, that if they were for the benefit of members only they would be regarded as donations that were purchasing facilities for the benefit of members and did not apply necessarily to a vocation or trade, were not covered by the next subsection and would therefore make the body liable to charge VAT on subscriptions.
This is a matter of fiendish complexity, and it may not be clear to the Financial Secretary or to the rest of the House where we are left. There have been various descriptions. The Financial Secretary said that a donation not used for the benefit of members exclusively would allow a club or body to be free of VAT. There is another description in Amendment No. 77, and yet another that appears in the article and is reproduced in our amendments. In addition, we have the tests that have been offered by the Financial Secretary.
I am left with the feeling that our criticisms in Committee remain valid and that we are being offered an attempt that still defines the matter too narrowly and in a way that leaves the position of a great many bodies, perhaps inevitably but quite definitely, extremely uncertain. We are being asked to accept an amendment in that form, and it is not satisfactory. Having examined the matter very carefully and listened to the Financial Secretary, I still feel that he and his advisers have not got it right. Until they do get it right, we shall create even more uncertainty and difficulty than is necessary in applying the directive.

5.15 p.m.

Mr. William Molloy: I agree with what the hon. Member for Guildford (Mr. Howell) said about the fiendish difficulty of trying to interpret these matters. It seems that it is almost impossible to get an accurate interpretation.
I wish to put a point on behalf of one of Britain's learned societies—the Royal Geographical Society. I have to declare an interest, as a member of the council of the society. The difficulty in which the society finds itself is probably shared by many other learned societies. Its terms of election are too broad for it to qualify as a trade union or a professional association.
The society regards it as a duty to interpret geography for the interest of members of the general public, so the subscriptions of its 6,000 fellows support the research activities of more learned members that could ultimately be passed on to associate members and, for example, to many thousands of schoolchildren whose schools are associate members.
About half the fellows and members are professionally engaged in geography or related subjects, but this qualification is not included in the definition of eligibility in the society's articles of association.
The imposition of VAT on RGS subscriptions would be a serious financial blow. I hope that in trying to interpret all the documents relating to this subject, my right hon. Friend the Financial Secretary will bear in mind that the Society's terms of reference and election are too broad for it to qualify as a trade union or a professional association, but that there are certain aspects that seem to indicate that it should be exempted from VAT, and I believe that we should adopt this approach.
The immense difficulties of trying to interpret what is meant by the provisions that we are discussing makes it difficult to explain my case in a short debate. I hope, therefore, that if I send my right hon. Friend all the necessary data on behalf of the RGS, he will examine it and will agree with me that it qualifies for exemption.

Mr. Powell: We are having an excellent, if unenjoyable, example of the consequences of an external foreign body seeking to lay down the lines of legislation and limits of legislation for this subordinate House. The whole form and nature of the legislation on the Continent is different in its habits and purposes from that which constitutes our statute law.
There are two specific illustrations of this in Article 13(1) of the Sixth Directive that have caused the trouble in Committee and today. First, there is the ambiguity that was a matter of discussion between the hon. and learned Member for Dover and Deal (Mr. Rees) and myself. I do not think that the draftsman would allow that to arise in English statutes, but we cannot ask the draftsman. It must be a matter of immense difficulty to get an authoritative interpretation of what "linked thereto" means, because these are not our words; they are not the words of the Government; they are not the words of the Government's servants; they are the words of an external body, and we have to sit here musing what that body could possibly mean by those words.
Then there are the words:
provided that this exemption is not likely to to cause distortion of competition.
It is not uncommon for Continental law that is to be the basis of bureaucratic and official administration to include such philosophical and economic propositions of great generality. It would be interesting to debate how distortion of competition arises, to what extent it arises, and how it could arise in the context of the matter to which the amendment is directed. But that is not the sort of law that we pass. We endeavour in this House not to hand to the judges, whatever view we may take of them, the decision on what are the circumstances in which competition is distorted, and we do not ask them to apply their minds to large philosophical and economic investigations. But, unfortunately, in the directive in question we have to try to translate all that into the interpretable language of a United Kingdom financial statute.
It is, I am afraid, vain for the hon. Member for Guildford (Mr. Howell) to inquire rather plaintively how they do it in other Community countries. What a position we have got ourselves into when, in deciding what we can put, what we are required to put, what we are under duress to put, into a United Kingdom Finance Bill, we have to run round and try to find out what they have done or intend to do in Luxembourg so that we can keep in line with the interpretation of the article which is being employed in all the other eight countries.
But in a sense the hon. Gentleman is right. It would be unreasonable for us to be out of step, to the disadvantage of our own citizens, with what interpretation is applied in the other parts of the Community. What an impracticable situation we have placed ourselves in, unless all these matters are to be justiciable by the European Court, and unless the taxability of the Royal Geographical Society is to become a matter on which case law will be built up in the European Court. That is the implication of the inquiry proffered by the hon. Gentleman.
Speaking for myself and my right hon. and hon. Friends—and we have tried to direct our minds to the problem as best we can—I think that Amendment (a) and Amendment (b) go unconscionably wide

and that the formula in Amendment No. 77, moved by the Financial Secretary, at any rate has the advantage of a reasonable degree of certainty and precision. I think that there is a principle here which ought to be recognised and could be agreed, and that is that where the payment of a subscription secures services which, if they were not procured from a society or body, would be subject to value added tax if they were procured by the beneficiary from some other source, prima facie that subscription ought to carry VAT.
I say that without any criticism of the complaints put forward by the CLA, the NFU and other bodies, but it seems to be a requirement of fairness and justice that we ought to adopt, since we have to make the attempt, the wording of the amendment. What one is doing is attempting to give precision and legal statutory meaning to the underlying notion
provided that the exemption is not likely to cause distortion of competition",
that is to say, we want all services of the same nature, whether they are from a club or society or professional adviser, for example, to attract VAT in as near as may be the same way.

Mr. Peter Rees: Since the right hon. Gentleman has commended the Government amendment and criticised amendments (a) and (b) on the basis that the Government amendment enjoys an enviable precision while (a) and (b) lack that quality, may I ask him to apply himself a little more closely than perhaps he has done to subsection (3) of Amendment No. 77, because at least half of it follows precisely article 13, just as Amendments (a) and (b) do? If, therefore, the Government amendment enjoys precision, so surely should (a) and (b). Perhaps he will consider and apply his mind to that.

Mr. Powell: No; it happens that the difficulty does not lie in the words common to the article and to the amendments; it lies in the words that are not identical in the various amendments. I have done my best with 12A(3) of the Government amendment, and it seems to me that the expression
no facility or advantage for the subscriber other than the right to participate in its management or receive reports of its activities


effectively excludes all those other goods or services which could be procured from other sources and would be subject to VAT if they were procured from and provided by those other sources. My belief, therefore, is that the Government amendment is far nearer to expressing in statutory terms the principle of equity which underlies the words
provided that the exemption is not likely to cause distortion of competition
than Amendments (a) and (b).

Mr. Nigel Lawson: Will not the right hon. Gentleman agree, however, that the Government's wording, although very precise, is quite clearly more exclusive, and much narrower, than the terms of the Sixth Directive?

Mr. Powell: It may be more exclusive than the implication of Article 13F—it may be. But it is up to those who claim that is so to specify the services and goods which they think ought to be exempt and which would not be subject to VAT if they were procured from some other source. I find it difficult to distinguish such a category. I feel, therefore, as advised at this stage, that in a choice of difficulties the advantage both of precision and of interpretability lies with the form of words adopted by the Financial Secretary.

Mr. Nicholas Ridley: I was fascinated by the preferences of the right hon. Member for Down, South (Mr. Powell) in English and Continental draftsmanship, but I am afraid that I was unable entirely to agree with the conclusion he reached. I thought that his view of which club and association subscriptions should attract value added tax was more coloured by his dislike of the EEC than by his understand of the problems and the nature of the organisations concerned. I think that the Government amendment, which he finds so superior in draftsmanship, is almost unintelligible, whereas one can at least understand what Amendment (b) means.
First, Amendment No. 77 carries the extraordinary phrase, in subsection (3)
 in the public domain and are of a political, religious, philanthropic, philosophical or patriotic nature ".
What is the public domain is not at all clear to me, and it seems to be a very untypical piece of draftsmanship that the

right hon. Gentleman would do well to ponder on. The wording "political, religious," and so on, seems to be as wide as life itself. I can think of few activities by any organisation that could not somehow be squeezed under one of those hats. Obviously, commerce is excluded, but that we know. It seems to me to add very little to the understanding of which organisations are excluded and which are not.
The draft order goes through a totally different definition. It refers to
a trade union or other organisation of persons having as its main object the negotiation on behalf of its members of the terms and conditions of their employment.
It also refers to professional associations, and the third category is
an association, the primary purpose of which is the advancement of a particular branch of knowledge …".
Why that order is not incorporated in the Government amendment I do not know, because we have two completely different sets of definitions. One is contained in Amendment No. 77 and one is contained in the draft order. I am not clear under what powers the Treasury hopes to make the order law, because the powers for order-making seem to have been cut out by the amendment carried in Committee and not reinstated in Amendment No. 77. There is no order-making power in Amendment No. 77 to extend the definition, as far as I can see, but that is a secondary point and it may well be a false one.
5.30 p.m.
The test, surely, is whether any reasonable person reading Amendment No. 77 can tell who is and who is not included. I should have thought that the CLA and the NFU would be excluded, because they are both of a political nature. They could hardly be called philanthropic. Certainly they are political in at least part of their intent.
What happens if an organisation is partly political and partly commercial in its objects? The Royal Automobile Club and the Automobile Association are certainly commercial in part of their activities, because they provide services of a commercial nature to motorists. On the other hand, I suggest that part of their activities is political. They come to this House to lobby Members as to how they should legislate about road traffic


and petrol matters. We all receive circulars from them. Are they to be exempt or are they not?
It is very far from clear to me whether this sub-paragraph of Amendment No. 77 would exempt them. It is quite clear that Amendments (a) and (b) would exempt them, because in no sense could they be said to be causing distortion of competition.
Whatever the merits of the draftsmanship may be, at least there is some understanding of what Amendment (b) means, whereas there is very little to commend Amendment No. 77 on the ground of understanding who will be within and who will be without.
At least the Financial Secretary has made an attempt at a definition, and I pay tribute to him for that. He did not simply leave it to some order, although there still appears to be one coming later. I hope that he will clear up the question whether it is still to come or is superseded by Amendment No. 77. But inasmuch as he has tried to define something at this stage of the Bill, it is an improvement to that extent.

Mr. Marcus Kimball: Following on from what my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) said about voluntary organisations, I feel that nothing could have been more charming than the tribute paid by the Financial Secretary to voluntary organisations when he moved the amendment; but however sympathetic and charming the Financial Secretary may be it is always a little more difficult when we come to deal with the tax-gathering authorities.
However, having said that, I pay tribute to the way in which the Customs and Excise headquarters at Kings Beam House helped in the original stages of VAT in 1972. No one could have been more helpful in advising the voluntary bodies on their approach to this problem and in looking very carefully at the aims and published objectives of voluntary bodies to see whether they were to be VAT-able.
The Financial Secretary said today that the shape of the order is yet to be made. The criterion for deciding whether many of these voluntary bodies have to pay VAT is their published aims and objectives. These aims and objectives are revisable

by any voluntary body at its annual general meeting. I am thinking in particular of the Women's Institutes. One's subscription to the Women's Institute—a very powerful body of opinion throughout the country—is VAT-able at the moment, because it publishes a monthly magazine.
Surely there is an opportunity now to say to these bodies "We will reassess your VAT-able position, but there is just a chance, with the order about to be made, that if you change your aims and objectives and bring them into line so that you are not VAT-able, it may be possible to put them right."
As I understand it, the Financial Secretary, in introducing subsection (3) has granted a measure of relief to some of the voluntary bodies for which representation was made in Committee. I do not think there is any doubt now that, tor example, Dr. Barnardo's—a charity about which no one would have any doubt—is now safely excluded from VAT.
I do not think that there is any doubt that the political lobby of which I have the privilege of being chairman will remain un-VAT-able. After the past battles that we have had in another capacity with the Financial Secretary we are very grateful to receive this concession from him now. But, like my hon. and learned Friend the Member for Dover and Deal (Mr. Rees), I doubt whether the Government have drawn their subsection (3) widely enough to exclude bodies such as the CLA and the NFU. It is for that reason that I shall certainly be supporting him in the Lobby tonight.
Will the Financial Secretary say what is meant by the words "public domain"? It is an extraordinary term to have from a Socialist Government. I thought that private domains went out with the French Revolution. It is extraordinary that it takes a Socialist Government to bring forward the public domain to the Statute Book.

Mr. Ian Stewart: When, in Committee, I moved Amendment No. 130, it was accepted by a vote of no less than 15 to 12, representing not only my hon. Friends but some hon. Members on the Government side and also the Liberal representative on the Committee. I moved that amendment because at that stage it


was clear that the Committee was not in a position to judge what were the Government's VAT proposals on subscriptions. As a result of the success of that amendment in Committee, the offending paragraph was removed, and since that date we have had the benefit of a great deal more information about the Government's intention. I think, therefore, that it showed that we were right to carry the amendment in Committee.
We now have a Press notice—No. 459, dated 10th June 1977. There is an explanatory note headed "Trade Unions and Professional Bodies Etc.". There is also a draft of the Treasury Order for Schedule 5, Group 9, which covers these headings. Finally, there are some notes on the order. Whereas we had a shortage of information in Committee, we now have perhaps an embarrassment of information, and it is difficult to reconcile these different documents.
The point I wish to take up—it has been made by a number of my hon. Friends and also by the hon. Member for Ealing, North (Mr. Molloy)concerns the way in which these proposals will affect learned societies. We must always be suspicious when, in formulating our legistion following a directive from the EEC, the Government choose to introduce a measure that is less generous than it might be and that puts associations, clubs and societies in this country on a less advantageous and a less generous footing than that on which they would be under the directive, or, for all we know, in other countries.
The restriction to which I particularly object is that which says that learned societies shall have the right to be exempt from VAT on their subscriptions only if they consist principally of employees. This is no accident, because it is referred to in no less than four different places in four completely different ways in the documents to which I have referred.
First, in the Press notice it says that
the Directive contains provisions which will continue the exemption for trade unions and other associations whose membership largely consists of employees or individuals pursuing a trade, profession or vocation.
I do not find those words, or anything very close to them, in the directive. But it is not an accident, for if we turn to

the explanatory note we read that it shall apply
to learned (e.g. scientific or philosophical) societies directly connected with the profession or employment of members.
When we read the draft order itself we find that item 1(c) refers to
an association, the primary purpose of which is the advancement of a particular branch of knowledge, or the fostering of professional expertise, connected with the past or present professions or employments of its members.
But note (3) states that
Paragraph (c) does not apply unless the association restricts its membership wholly or mainly—
whatever that may mean—
to individuals whose present or previous professions or employments are directly connected with the purposes of the association.
I declare an interest, as a Fellow of the Society of Antiquaries. Other bodies might be affected by these provisions. What I simply cannot understand is how this definition will operate. For example, the Society of Antiquaries includes a number of professionals—professors of history and archaeology, musuem curators, and others—but also a great number of amateurs. The proportion between the two varies from one year to another. If a number of elderly professionals were to die off one year, the balance could be tipped.

Mr. Molloy: Does the hon. Gentleman agree that there is also the possibility of a real danger, since many of our learned societies, like the Royal Geographical Society and the others that he has mentioned encourage the amateur, and those interested in various subjects, to join? If they really want to avoid the imposition of this tax all they have to do is to exclude the interested amateur and allow only professionals to be members. In my judgment—I hope that the hon. Gentleman will agree that would constitute an almost heinous crime.

Mr. Stewart: I did not want to prolong my speech, but I must take time to agree with what the hon. Gentleman has just said. There is great merit in learned societies that combine professional and amateur contributions to knowledge. If they were to suffer from the directive that is now proposed it would be a grave mistake. So far as I can see, that is not imposed upon us by the terms of the draft directive.
Therefore, I hope that the amendments that we have proposed will be acceptable. More than that, I hope that before this draft order becomes a real one the Financial Secretary and his advisers will have taken time to think further about this and to remedy a situation that could be more serious than they realise.

Mr. Robert Sheldon: I start off with Amendment (a), moved by the hon. and learned Member for Dover and Deal (Mr. Rees). He claimed that the amendment would give what he called greater exactitude and fidelity to the Sixth Directive. I think that the notable part of the amendment is that it avoids the problem of the distortion of competition, which is an inescapable part of the directive itself. Far from providing the greater exactitude and fidelity, it leaves out that which underlines most of the reasons for the inclusion of these arrangements in our legislation.
We are aware that Amendment (b) tries to make good that deficiency. It tries to insert this as the test for VAT to be exempt from clubs, societies and institutions. It seeks to provide real certainty by copying what it assumes to be the precision of the directive itself and incorporating that into our legislation.
As the right hon. Member for Down, South (Mr. Powell) observed, this attempt is an impossible one, because what we are seeing here is the end result that it hopes to achieve rather than the precision of the means by which we guarantee our legislation. What we have done here is to try to produce in legislative form the way in which the directive itself can proceed to implementation. The easy assumption that all we have to do is copy the directive in order to get the certainty that the directive has is a mistaken one.
5.45 p.m.
What we are seeing is an attempt that has been made by the Government to produce the attitude of the Sixth Directive itself. If we were to accept Amendment (b) we would give to the Customs and Excise the task of defining the distortion of competition. If it did not define that adequately it would be open to the aggrieved party to take the matter to a tribunal. It would then be for the VAT tribunal to decide whether a distortion of competition was occurring. That would no doubt result in bevies of economists

launching into this complex and impossible-to-ascertain area where no conclusion can ever result.

Mr. Powell: Would it not be possible thereafter for the matter to be referred to the European Court on the ground that the proceedings of the Customs and Excise were in accordance with the directive?

Mr. Sheldon: That could well be a further consequence of the nonsense of this kind of approach, as shown by the arguments advanced by the right hon. Gentleman and the points that I have tried to add to those arguments.

Mr. Peter Rees: The Financial Secretary may have been led to accept too readily the point put to him by the right hon. Gentleman, however authoritative the source may be. Surely it is not yet the position that the European Court has the power to review domestic fiscal legislation or the decisions of domestic courts in order to construe domestic fiscal legislation? If that is so, can the Financial Secretary cite a single case where it has been so?

Mr. Sheldon: I do not think that the avenue down which the hon. and learned Gentleman is trying to lead me is a matter that lies before us. What we are concerned about is the interpretation of a general directive into specific legislation, with the authority of this House, and which could lead to consequences which flow from that.
The hon. Member for Guildford (Mr. Howell) asked about the interpretation of the directive, and whether that interpretation was to the best conceivable advantage of societies, clubs and institutions. I think that I gave the answer in my opening remarks, when I said that I was trying to interpret the Sixth Directive as widely as possible within the terms of the directive as we saw it.
The hon. Gentleman asked about comparisons with other countries. The problem is that by a coincidence of time we happen to be the first to legislate in this area, and therefore it is not possible to make that comparative test. I would give the assurance that if we are seen to be more restrictive and to interpret the directive too strictly, via the order that


has yet to come, and on which consultations are proceeding, the draft order as published can be amended in the light of discussions and consultations that are taking place, and can take into account some of these possible changes. This is the answer to the hon. Member for Cirencester and Tewkesbury (Mr. Ridley).

Mr. Ridley: The Financial Secretary should not use the word "amended". He knows that an order cannot be amended. That is our objection. He ought to have said"changed by ministerial fiat".

Mr. Sheldon: I accept the point, but this is only a draft order, and a draft order can be changed before it comes to this House for final approval.
The hon. Member for Guildford asked me about the tests. Perhaps I may summarise them without too much loss of accuracy. I know that this is an area where accuracy is important, but although it may not have the precision that legislation has it will at any rate give the House the opportunity to question more fully the kind of tests that I announced earlier.
The first test for exemption is whether membership is customary—that is, for people in a certain occupation or profession. It need not be essential. The membership of certain professional bodies is regarded as essential for many people in the professions. We do not go as far as that. We say that provided its membership is customary, the organisation will be exempt. The second test is that provided that the facilities that are given are facilities for which VAT is not normally chargeable, the organisation will be exempt. This meets the test that the right hon. Member for Down, South mentioned. It is one that I myself mentioned earlier. This is an important element of it. The third test is that the benefit is to the community generally and not to the individual concerned. The final test is that the subscription has the nature of a donation.
I think that those tests go very far in meeting the problems of the various organisations concerned, and they show the importance that the Government attach to the flourishing of the societies. We look forward to receiving further representations that may be made, and we hope to be able at any rate to take

into account the general views expressed to us before the order is finally brought to the House.

Mr. David Howell: With the leave of the House, I should like to say that the debate has turned on the alleged vagueness or precision of the rival amendments, and various arguments have been put forward to support the qualities of each amendment.
What is certain is that vagueness or uncertainty is endemic in the situation with which we are grappling. It is endemic because the procedure which is to be followed is that a Treasury order will be drawn up, of which we have a draft, and will come into effect on 1st January 1978, and then certain criteria, some of which are mentioned in the draft order and others of which the Financial Secretary has elaborated, will be applied. So uncertainty and vagueness are there, anyway.
The right hon. Member for Down. South (Mr. Powell) pointed to what he asserted to be the potential vagueness of Amendment (b). Then he went on to talk of the precision of the Government's Amendment No. 77, and the Financial Secretary echoed this claim. The Government's amendment is alleged to meet more clearly the problem of the supply of goods that may be supplied by other bodies in competition. presumably, with the society or learned body.
I have to ask those who use the word "precision" in connection with Amendment No. 77 whether that can be applied when we look at the list of bodies that are to be exempt. It includes political, religious, philanthropic, patriotic or philosophical bodies. How can they be precise? I hesitate to raise any of the definitions of philosophical ", but I am sure that the right hon. Member for Down, South will accept that that is an attitude to life. It is not a precise word or definition. We know from Socrates onwards that the unexamined life is not worth living.
So the amendment is about the whole of life. How can it be precise? However, perhaps I should not pursue that. I merely make the point to bring home the fact that uncertainty is endemic in the whole range of these amendments. There is bound to be uncertainty if we do not know how the order is applied, and the


Financial Secretary's more elaborate tests.
That being the case, we are offered a choice between the uncertainties and vaguenesses of the Government's amendment, which is excessively narrow, and excludes a number of bodies, and our own amendment, which at least provides an opportunity for an interpretation that would exempt those bodies and would leave them in the same position as we suspect similar bodies in other member countries of the Community are to be left.
For those reasons, I urge my right hon. and hon. Friends to press Amendment (b), in that it makes a less bad job—

Mr. Lawson: Does my hon. Friend agree that the Government's complacency is unwarranted? The Bill originally contained a formula that was manifestly unacceptable and manifestly stricter, more rigorous and more exclusive than the Sixth Directive. It is only as a result of our pressure that the Government have been able to move in this modest way and to improve the formula to the extent that they have.

Mr. Howell: I nearly always agree with my hon. Friend the Member for Blaby (Mr. Lawson). In this case, I agree with him totally. He has put with great precision the point that is in all our minds. There is no credit to the Government in the way that they have acted in this matter. By good fortune, we were able to raise it in Committee and avoid being saddled with even more uncertain legislation. If we can now press Amendment (b), we shall make the best of that bad job.

Mr. Peter Rees: The only point of substance made against Amendment (a) came from the Financial Secretary, who said that it did not contain the proviso that is to be found in Article 13 and is reproduced in Amendment (b).
I found a certain difficulty in that proviso—a difficulty that the courts might have shared. On reflection, however, I appreciated that the difficulties would probably evaporate, since they were difficulties that must have been encountered by the courts in the application

of the Restrictive Trade Practices Act. In the application of that Act the courts have done justice evenhandedly, though that may not be entirely acceptable to Government supporters. I see no reason why the courts should not do equal justice in the application of Amendment (b).
The case made out by the Financial Secretary also rested on the precision, accuracy or lucidity of Amendment No. 77, He received surprising but perhaps not unaccustomed support from the right hon. Member for Down, South (Mr. Powell).
If and when I am called on to construe Amendment No. 77, should it find favour with the House, I shall recall this debate a little wryly. The phrases that are to be found in it are not those that any English lawyer has had to encounter. The phrase "public domain" has not so far been the subject of construction by the courts.

Mr. Powell: In that case, is not it regrettable that Amendment (b) proposes to leave in those terms?

Mr. Rees: The right hon. Gentleman makes an interesting point. In any event, the difficulties of construction with which the courts are to be faced will be considerably increased by Amendment No. 77, whereas they would be diminished by Amendment (a) and, it must be said, also by Amendment (b).
So as to disarm criticism, and in deference to my hon. Friend the Member for Guildford (Mr. Howell), I beg to ask leave to withdraw Amendment (a). I hope that Amendment (b) will find favour with my right hon. and hon. Friends.

Amendment (a) to the proposed amendment, by leave, withdrawn.

Amendment proposed to the proposed Amendment(b), in line 13, leave out from 'only' to end of line 15 and insert
'by virtue of the supply of services and goods closely linked thereto for the benefit of its members in return for a subscription fixed in accordance with its rules; provided that this exemption is not likely to cause distortion of competition'.—[Mr.David Howell.]

Question put, That the amendment to the proposed amendment be made:—

Division No. 204]
AYES
[6.00 p.m.


Adley, Robert
Goodhart, Philip
Monro, Hector


Aitken, Jonathan
Goodhew, Victor
Montgomery, Fergus


Alison, Michael
Goodlad, Alastalr
Moore, John (Croydon C)


Amery, Rt Hon Julian
Gorst, John
Morgan, Geraint


Arnold, Tom
Gow, Ian (Eastbourne)
Morgan-Giles, Rear-Admiral


Atkins, Rt Hon H. (Spelthorne)
Gower, Sir Raymond (Barry)
Morris, Michael (Northampton S)


Awdry, Daniel
Grant, Anthony (Harrow C)
Morrison, Charles (Devizes)


Baker, Kenneth
Gray, Hamish
Morrison, Hon Peter (Chester)


Bell, Ronald
Grieve, Percy
Mudd, David


Bennett, Sir Frederic (Torbay)
Griffiths, Eldon
Neave, Airey


Bennett, Dr Reginald (Fareham)
Grist, Ian
Nelson, Anthony


Benyon,W.
Hamilton, Michael (Salisbury)
Neubert, Michael


Berry, Hon Anthony
Hampson, Dr Keith
Normanton, Tom


Biffen, John
Hannam, John
Nott, John


Biggs-Davison, John
Harrison, Col Sir Harwood (Eye)
Oppenheim, Mrs Sally


Blaker, Peter
Harvie Anderson, Rt Hon Miss
Osborn, John


Body, Richard
Haselhurst, Alan
Page, John (Harrow West)


Boscawen, Hon Robert
Hastings, Stephen
Page, Rt Hon R. Graham (Crosby)


Bottomley, Peter
Havers, Rt Hon Sir Michael
Page, Richard (Workington)


Bowden, A. (Brighton, Kemptown)
Hawkins, Paul
Parkinson, Cecil


Boyson, Dr Rhodes (Brent)
Hayhoe, Barney
Pattie, Geoffrey


Braine, Sir Bernard
Henderson, Douglas
Peyton, Rt Hon John


Brittan, Leon
Heseltine, Michael
Price, David (Eastleigh)


Brooke. Peter
Hicks, Robert
Pym, Rt Hon Francis


Brotherton, Michael
Higgins, Terence L.
Rathbone, Tim


Brown, Sir Edward (Bath)
Hodgson, Robin
Rawlinson, Rt Hon Sir Peter


Bryan, Sir Paul
Holland, Philip
Rees, Peter (Dover &amp;Deal)


Buck, Antony
Hordern, Peter
Rees-Davies,W.R.


Budgen, Nick
Howe, Rt Hon Sir Geoffrey
Renton, Rt Hon Sir D. (Hunts)


Bulmer, Esmond
Howell, David (Guildford)
Renton, Tim (Mid-Sussex)


Burden,F.A.
Howell, Ralph (North Norfolk)
Rhodes James,R.


Butler, Adam (Bosworth)
Hunt, David (Wirral)
Rhys Williams, Sir Brandon


Carlisle, Mark
Hunt, John (Bromley)
Ridley, Hon Nicholas


Chalker, Mrs Lynda
Hurd, Douglas
Ridsdale, Julian


Channon, Paul
Hutchison, Michael Clark
flifkind, Malcolm


Churchill, W.S.
Irving, Charles (Cheltenham)
Roberts, Michael (Cardiff NW)


Clark, Alan (Plymouth, Sutton)
James, David
Roberts, Wyn (Conway)


Clark, William (Croydon S)
Jenkin, Rt Hon P. (Wanst'd&amp;W'df'd)
Rodgers, Sir John (Sevenoaks)


Clarke, Kenneth (Rusticliffe)
Jessel, Toby
Rossi, Hugh (Hornsey)


Clegg, Walter
Johnson Smith, G. (E Grinstead)
Rest, Peter (SE Derbyshire)


Cockcroft, John
Jones, Arthur (Daventry)
Royle, Sir Anthony


Cooke, Robert (Bristol W)
Jopling Michael
Sainsbury, Tim


Cope, John
Joseph, Rt Hon Sir Keith
St. John-Stevas, Norman


Cormack, Patrick
Kaberry, Sir Donald
Scott, Nicholas


Corrie, John
Kellett-Bowman, Mrs Elaine
Scott-Hopkins, James


Costain,A.P.
Kershaw, Anthony
Shaw, Giles (Pudsey)


Critchley, Julian
Kimball, Marcus
Shelton, William (Streatham)


Crouch, David
King, Evelyn (South Dorset)
Shepherd, Colin


Crowder,F.P.
King, Tom (Bridgwater)
Shersby, Michael


Dean, Paul (N Somerset)
Kitson, Sir Timothy
Silvester, Fred


Dodsworth, Geoffrey
Knox, David
Sims, Roger


Douglas-Hamilton, Lord James
Lamont, Norman
Sinclair, Sir George


Drayson, Burnaby
Latham, Michael (Melton)
Skeet, T. H. H.


du Cann, Rt Hon Edward
Lawson, Nigel
Smith, Timothy John (Ashfleld)


Duranl, Tony
Le Merchant, Spencer
Speed, Keith


Dykes, Hugh
Lewis, Kenneth (Rutland)
Spence, John


Eden, Rt Hon Sir John
Lloyd, lan
Spicer, Jim (W Dorset)


Edwards, Nicholas (Pembroke)
Loveridge, John
Spicer, Michael (S Worcester)


Elliott, Sir William
Luce, Richard
Sproat, lain


Emery, Peter
McAdden, Sir Stephen
Stainton, Keith


Ewing, Mrs Winifred (Moray)
McCrindle, Robert
Stanbrook, Ivor


Eyre, Reginald
Macfarlane, Neil
Stanley, John


Fairbairn, Nicholas
MacGregor, John
Stewart, Rt Hon Donald


Farr, John
MacKay, Andrew James
Stewart, lan (Hitchin)


Fell, Anthony
Macmillan, Rt Hon M. (Farnham)
Stokes, John


Finsberg, Geoffrey
McNair-Wilson, M. (Newbury)
Stradling Thomas, J.


Fisher, Sir Nigel
McNair-Wilson, P. (New Forest)
Tapsell, Peter


Fletcher, Alex (Edinburgh N)
Madel, David
Taylor, R. (Croydon NW)


Fookes, Miss Janet
Marshall, Michael (Arundel)
Taylor, Teddy Cathcart)


Forman, Nigel
Marten, Neil
Tebbit, Norman


Fowler, Norman (Sutton Cf'd)
Mates, Michael
Temple-Morris, Peter


Fox, Marcus
Maude, Angus
Thatcher, Rt Hon Margaret


Fraser, Rt Hon H. (Stafford &amp; SI)
Maudling, Rt Hon Reginald
Thomas, Rt Hon P. (Hendon S)


Fry, Peter
Mayhew, Patrick
Thompson, George


Galbraith, Hon T. G. D.
Meyer, Sir Anthony
Townsend, Cyril D.


Gardiner, George (Reigate)
Miller, Hal (Bromsgrove)
Vaughan, Dr Gerard


Gardner, Edward (S Fylde)
Mills, Peter
Viggers, Peter


Gilmour, Rt Hon Sir Ian (Chesham)
Miscampbell, Norman
Wakeham, John


Gilmour, Sir John (East Fife)
Mitchell, David (Baslngstoke)
Walder, David (Clitheroe)


Glyn, Dr Alan
Moate, Roger
Walker-Smith. Rt Hon Sir Derek

The House divided:Ayes 250 Noes.282

Wall, Patrick
Wiggin, Jerry


Walters, Dennis
Wilson, Gordon (Dundee E)
TELLERS FOR THE AYES


Warren, Kenneth
Wood, Rt Hon Richard
Mr. Carol Mather and


Weatherill, Bernard
Young, Sir G. (Ealing, Acton)
Mr. Jim Lestor.


Welsh, Andrew
Younger, Hon George





NOES


Abse, Leo
Ennals, David
Mabon, Rt Hon Dr J. Dickson


Allaun, Frank
Evans, Fred (Caerphilly)
McCartney, Hugh


Archer, Rt Hon Peter
Evans, loan (Aberdare)
McDonald, Dr Oonagh


Armstrong, Ernest
Evans, John (Newton)
McElhone, Frank


Ashley, Jack
Ewing, Harry (Stirling)
MacFarquhar, Roderick


Ashton, Joe
Faulds, Andrew
MacKenzie, Rt Hon Gregor


Atkins, Ronald (Preston N)
Fernyhough, Rt Hon E.
Maclennan, Robert


Atkinson, Norman
Fitch, Alan (Wigan)
McMillan, Tom (Glasgow C)


Bagier, Gordon A. T.
Flannery, Martin
McNamara, Kevin


Barnett, Guy (Greenwich)
Fletcher, Ted (Darlington)
Madden, Max


Barnett, Rt Hon Joel (Heywood)
Foot, Rt Hon Michael
Magee, Bryan


Bates, Alf
Forrester, John
Mahon, Simon


Bean,R. E.
Fowler, Gerald (The Wrekin)
Mallalieu, J. P. W.


Benn, Rt Hon Anthony Wedgwood
Fraser, John (Lambeth, N'w'd)
Marks, Kenneth


Bennett, Andrew (Stockport N)
Freeson, Reginald
Marshall, Jim (Leicester S)


Bidwell, Sydney
Freud, Clement
Maynard, Miss Joan


Bishop, Rt Hon Edward
Garrett, John (Norwich S)
Mellish, Rt Hon Robert


Blenkinsop, Arthur
George, Bruce
Mendelson, John


Boardman, H.
Gilbert, Dr John
Mikardo, lan


Booth, Rt Hon Albert
Ginsburg, David
Millan, Rt Hon Bruce


Boothroyd, Miss Betty
Gourlay, Harry
Miller, Dr M. S. (E Kilbride)


Bottomley, Rt Hon Arthur
Grant, George (Morpeth)
Mitchell, R. C. (Soton, ltchen)


Boyden, James (Bish Auck)
Grant, John (Islington C)
Molloy, William


Bradley, Tom
Grimond, Rt Hon J.
Moonman, Eric


Bray, Dr Jeremy
Grocott, Bruce
Morris, Alfred (Wythenshawe)


Brown, Hugh D. (Provan)
Hamilton, James (Bothwell)
Morris, Charles R. (Openshaw)


Brown, Robert C. (Newcastle W)
Hamilton, W. W. (Central Fife)
Morris, Rt Hon J. (Aberavon)


Brown, Ronald (Hackney S)
Hardy, Peter
Moyle, Roland


Buchan, Norman
Harper, Joseph
Mulley, Rt Hon Frederick


Buchanan, Richard
Harrison, Rt Hon Walter
Murray, Rt Hon Ronald King


Callaghan, Jim (Mlddleton &amp; P)
Hart, Rt Hon Judith
Newens, Stanley


Campbell, Ian
Hatton, Frank
Noble, Mike


Canavan, Dennis
Hayman, Mrs Helene
Oakes, Gordon


Cant,R. B.
Healey, Rt Hon Denis
Ogden, Eric


Carmichael, Neil
Heffer, Eric S.
O'Halloran, Michael


Carter, Ray
Hooley, Frank
Orbach, Maurice


Carter-Jones, Lewis
Hooson, Emlyn
Orme, Rt Hon Stanley


Cartwright, John
Horam, John
Ovenden, John


Castle, Rt Hon Barbara
Hoyle, Doug (Nelson)
Owen, Rt Hon Dr David


Clemilson, Ivor
Huckfleld, Les
Padley, Walter


Cocks, Rt Hon Michael
Hughes, Rt Hon C. (Anglesey)
Palmer, Arthur


Cohen, Stanley
Hughes, Robert (Aberdeen N)
Pardoe, John


Coleman, Donid
Hughes, Roy (Newport)
Park, George


Concannon,J. D.
Hunter, Adam
Parry, Robert


Conlan, Bernard
Irving, Rt Hon S. (Dartford)
Pavitt, Laurie


Cook, Robin F. (Edin C)
Jackson, Colin (Brighouse)
Pendry, Tom


Corbett. Robin
Jackson, Miss Margaret (Lincoln)
Perry, Ernest


Cowans, Harry
Janner, Greville
Phipps, Dr Colin


Cox, Thomas (Tooting)
Jay, Rt Hon Douglas
Prescott, John


Craigen Jim Maryhill
Jeger, Mrs Lena
Radice, Giles


Crawshaw, Richard
Jenkins, Hugh (Putney)
Rees, Rt Hon Merlyn (Leeds S)


Cronin John
John, Brynmor
Richardson, Miss Joe


Crowther, Stan (Rotherham)
Johnson, James (Hull West)
Roberts, Albert (Normanton)


Cryer, Bob
Johnson,Walter(Derby S)
Roberts, Gwilym (Cannock)


Cunningham, G. (Islington S)
Johnson, Russell(Inverness)
Robinson, Geoffrey


Cunningham Dr J (Whiteh)
Jones, Alec (Rhondda)
Roderick, Caerwyn


Davidson,Arthur
Jones, Barry (East Flint)
Rodgers, George (Chorley)


Davies, Bryan (Enfleld N)
Jones, Dan (Burnley)
Rodgers, Rt Hon William(Stockton)


Davles, Denzll (Llaneill)
Kaufman, Gerald
Rooker,J.W.


Davies,Ifor(Gower)
Kelley, Richard
Roper,John


Davis, Clinton (Hackney C)
Kilroy-Silk, Robert
Ross, Stephen (Isle of Wight)


Deakins, Eric
Kinnock, Neil
Ross, Rt Hon W. (Kilmarnock)


Dean, Joseph (Leeds West)
Lambie, David
Rowlands, Ted


de Freitas, Rt Hon Sir Geoffrey
Lamborn, Harry
Ryman.john


Dempsey, James
Lamond, James
Sandelson, Neville


Doig, Peter
Latham, Arthur (Paddington)
Sedgemore, Brian


Dormand, J. D
Leadbitter, Ted
Selby, Harry


Douglas-Mann, Bruce
Lee, John
Shaw, Arnold (liford South)


Duffy, A. E. P.
Lestor, Miss Joan (Eton &amp; Slough)
Sheldon, Rt Hon Robert


Dunnett, jack
Lever, Rt Hon Harold
Shore, Rt Hon Peter


Dunwoody, Mrs Gwyneth
Lewis, Arthur (Newham N)
Silkln, Rt Hon John (Deptford)


Eadle, Alex
Lewis, Ron (Carlisle)
Silkin, Rt Hon S. C. (Dulwich)


Edge, Geoff
Litterick, Tom
Silverman, Julius


Edwards, Robert (Wolv SE)
Loyden, Eddie
Skinner, Dennis


Ellis, John (Brigg &amp; Scun)
Luard, Evan
Small, William


Ellis, Tom (Wrexham)
Lyon, Alexander (York)
Smith, Cyril (Rochdale)


English, Michael
Lyons, Edward (Bradford W)
Smith, John (N Lanarkshire)







Snape, Peter
Thorpe, Rt Hon Jeremy (N Devon)
Whitlock, William


Spearing, Nigel
Tierney, Sydney
Wigley, Dafydd


Spriggs, Leslie
Tomlinson, John
Willey, Rt Hon Frederick


Stallard, A. W.
Tomney, Frank
Williams, Rt Hon Alan (Swansea W)


Steel, Rt Mon David
Torney, Tom
Williams, Alan Lee (Hornch'ch)


Stewart, Rt Hon M. (Fulham)
Tuck, Raphael
Williams, Sir Thomas (Warrington)


Stoddart, David
Urwin, T. W.
Wilson, Alexander (Hamilton)


Stott, Roger
Wainwright, Edwin (Dearne V)
Wilson, William (Coventry SE)


Strang, Gavin
Wainwright, Richard (Colne V)
Wise, Mrs Audrey


Strauss, Rt Hon G. R.
Walker, Harold (Doncaster)
Woodall, Alec


Summerskill, Hon Dr Shirley
Walker, Terry (Kingswood)
Woof, Robert


Swain, Thomas
Ward, Michael
Wrigglesworth, lan


Taylor, Mrs Ann (Bolton W)
Watkins, David
Young, David (Bolton E)


Thomas, Dafydd (Merioneth)
Watkinson. John



Thomas, Jeffrey (Abertillery)
Weetch, Ken



Thomas, Mike (Newcastle E)
Weitzman, David
TELLERS FOR THE NOSE:


Thomas, Ron (Bristol NW)
White, Frank R. (Bury)
Mr. Ted Graham and


Thorne, Stan (Preston South)
White, James (Pollok)
Mr. James Tinn.

Question accordingly negatived.

Amendment No. 77 agreed to.

Amendment made: No. 78, in page 61, line 48, at end insert—

'(c) the tax on the deemed supply would not be more than £50; or'.—[Mr. Robert Sheldon.]

Clause 15

REGISTRATION LIMITS

Amendment made: No. 8, in page 12. line 1, leave out subsection (4) and insert—

'(4) In section 20(1) of that Act (registration of local authorities), for "£5,000" (in both places) there shall be substituted "£7,500".

(5)In Schedule 2 to that Act, at the end of paragraph 3 (deemed supply of business assets, where business proprietor de-registered, except in certain cases), there shall be added—

"or

(c)the tax on the deemed supply would be not more than£50".

(6)Subsection (5) above shall not come into force until 5th August 1977, and subsections (1) to (4) not until 1st October 1977.'.—[Mr. Robert Sheldon.]

Clause 17

CHARGE OF INCOME TAX FOR 1977–78

The Chief Secretary to the Treasury (Mr. Joel Barnett): I beg to move Amendment No. 95, in page 12, line 33, leave out 35 per cent.' and insert 34 per cent'.

Mr. Deputy Speaker: With this we are to take the following:
Amendment (a) to the proposed amendment, leave out 34 'and insert 33'.
Amendment No. 10, in page 12, line 33, leave out '35' and insert 34'.
New Clause 83—Capital gains:unit trusts, etc.
'(1) In relation to gains accruing on disposals after 5th April 1977 section 112 of the Finance Act 1972 (reduction of tax liability on certain disposals of shares in unit trusts, investment trusts and funds in court) shall have effect as if for the references in paragraphs (b) and (c) of subsection (3) to 17½ per cent. there were substituted references to 17 per cent.
(2) Section 113 of that Act (reduced rate of capital gains tax for certain unit trusts and funds in court) shall have effect for the year 1977–78 and subsequent years of assessment as if the rate specified in it were 17 per cent. instead of 17½per cent.'.
Amendment (a) to the proposed new clause, in subsection (1), leave out 17 per cent.' and insert 16½ per cent.'.
Amendment (b) to the proposed new clause, in subsection (2), leave out 17 per cent.' and insert 16½per cent '.
New Clause 38—Decrease in deductions to be made from payments to subcontractors in the construction industry
Subsection (4) of section 69 of the Finance (No. 2) Act 1975 (which requires deductions to be made from payments to certain sub-contractors in the construction industry) shall have effect in relation to payments made on or after 1st September 1977 with the substitution of "35 per cent." of '33 per cent."'.
Government Amendments (a) and (b) to the proposed new clause.
Government Amendment No. 96, in Clause 19, page 13, line 20, leave out thirty-five sixty-fifths 'and insert thirty-four sixty-sixths'.
Amendment (a) to the proposed Amendment No. 96, leave out thirty-four sixty-sixths 'and insert thirty-three sixty-sevenths '.

6.15 p.m.

Mr. Barnett: Amendment No. 95, as will be clear to the House, seeks to reduce the basic rate of tax from 35p to


34p. There are a number of consequential new clauses and amendments taken with it on which it might be helpful if I say a few words at the outset.
New Clause 83 deals with the credit to capital gains tax in the case of unit trusts and investment trusts. It is exactly consequential on the reduction in the basic rate. New Clause 38 is again consequential on the reduction in the basic rate and relates to sub-contractors. On this I note that there is some concern, because the Opposition's amendment sought to have the date in September whereas we are suggesting that the date should be 6th November. I shall explain the reasoning behind this so that the House can understand why it was not possible to accept the date in September. The reason is that there are very serious operational problems, which I shall explain.
A new ready reckoner and guidance notes will need to be prepared for the purposes of all those involved in the industry to save great difficulty in the half million businesses involved. If we tried to do it in September, before such guidance notes were distributed, it would be extremely difficult, not least for the smaller firms, although the larger firms might be able to cope with the reduction. It could not be prepared and distributed in time for September. Without that kind of certainty, I think it would be helpful to start at the earliest conceivable date when we can start sending notices to all concerned. That would be the beginning of the income tax pay-as-you-earn month, which would be 6th November.
The House will appreciate that it does not affect the tax liability of the businesses concerned, which will be decided in the normal way when the accounts are submitted and assessed. I hope the House will recognise that, for these reasons, starting on 6th November is a sensible way of dealing with the matter.
Those are the two main consequential amendments. Amendment No. 96 is also directly consequential and relates to advance corporation tax.
We would, of course, have liked to reduce the basic rate of tax to 33 per cent. and we would have liked to do a great deal more about the threshold and also to introduce a reduced rate of tax.
I have said on many occasions in the House and in Committee that the starting

point for tax is far too high. We should have liked to make a start this year on a reduced rate band. We had a straight choice within the constraints of the borrowing requirement. Given the money available, we had to choose how much we could do on the threshold, how much we could do on the basic rate and how much, if anything we could do, on a reduced rate band. I make no bones about it. I preferred the original proposition to do something on the threshold plus 2p on the basic rate, which I believe would be a rather better balance than the additional amount on the threshold and only 1 p on the basic rate.
As I explained in Committee, there has been a narrowing of differentials in terms of net take-home pay which we need to widen somewhat. Much as I want to raise the threshold as rapidly as possible, if we took all the sum available on the threshold and nothing, as some of my hon. Friends would have liked, on the basic rate of tax, that would give precisely the same sum in terms of net take-home pay and tax relief to the man or woman earning £30 a week as to the man or woman earning £100 a week. It would have narrowed differentials in terms of net take-home pay yet further to a small extent. That is why we chose as our preference to raise the threshold as much as we could and also to reduce the basic rate of tax by 2p.
However, the Committee—and, it seems, the House—wants to raise the threshold rather more. Given the constraint on the borrowing requirement, it is not possible to do both. We have therefore decided to stay with the additional raising of the threshold plus 1 p, which is not as much as we would have liked but is still of some help to those in skilled employment and those with earnings at the top end of the basic rate band. I believe that it will be helpful in that respect, and I hope that the House agrees.
I recognise that there are those, such as the right hon. Lady the Leader of the Opposition in her speech yesterday, who seem to be asking my right hon. Friend the Chancellor of the Exchequer to do much more out of the sums available for the higher paid, whereas some of my hon. Friends prefer to devote virtually all the sums available to the threshold. There is no simple answer to these questions. The threshold is too low, and we need


to raise it as fast as we can. But, given all the constraints, I believe that the 1p, plus the additional raising of the threshold that we are now proposing, plus what was done in Committee, will be of considerable benefit.
I know from speaking to people in my constituency and elsewhere that there is still misunderstanding about when the relief will take effect. Some people think that it takes effect only from the date when we pass the proposal in this House. I should make it clear, however, that both the new basic rate and the increase in personal allowances will be effective from 5th April last. That means that most taxpayers will get a refund of tax. Indeed, in August the taxpayer on average earnings and liable to the basic rate of tax will have a total refund in respect of personal allowances and the reduction in the basic rate of £17.50 for a single man and –19.50 for a married man.
I hope that this proposal, together with the other measures announced by the Chancellor on Friday, will create the kind of climate that will enable us to obtain moderation in pay settlements during the next year. I should have preferred a more formal understanding on pay over the next 12 months, but I do not think we should under-estimate what the TUC has been able to do. The 12-months rule, as the TUC clearly spelt out in its document, should go a long way towards ensuring that there will not be a pay explosion in the next round. But that by itself will not be enough. Clearly we want settlements in the next round to ensure that the growth in earnings over the next 12 months will be within 10 per cent. overall. That does not mean that we can specify any particular figure in a period of free collective bargaining. But, as a Government, we shall be working to achieve that end.
The TUC was particularly helpful in its statement last week, which is worth quoting:
In the context of the restoration of voluntary collective bargaining, the emphasis should be on looking forward to what can be genuinely gained in terms of real living standards, not on looking backward to a situation where it was the vain attempt to counter the effects of inflation by escalating wage claims that exacerbated the very ill this was hoped to cure.
I am sure that the TUC meant what it said in that statement and that all members

of the TUC and the constituent trade unions will note what it said. But one is bound to recognise that in a period of free collective bargaining the real test is yet to come. The real test will come during the next 12 months of the pay round. The Government for their part, both as employer and as being responsible for the management of the economy, intend to do all they can to ensure that kind of restraint in pay settlements.
The raising of the tax threshold and the other measures that we have already announced, together with what we hope it will be possible to achieve in future, will show the trade union movement, and, indeed, all people who have to settle pay claims during the next 12 months, that we intend to try to create the kind of climate that will enable this country to move forward, with moderate pay claims and settlements in the next year, to the kind of economic situation that we can see within our grasp, with inflation of single figures and staying there and with living standards being maintained and thereafter moving on and up. I hope that the House will accept the amendment.

Sir Geoffrey Howe: The Chief Secretary helpfully explained New Clause 38 and the amendments being proposed by the Government as being the changes necessary to accommodate those in the construction industry for the change in the tax rate now proposed. Lt is difficult to believe that it is necessary to defer the date from 1st September to 6th November. No doubt the ready reckoners are documents and objects of enormous complexity in this industry, but it is hard to believe that such a long delay is necessary.
The right hon. Gentleman was right when he said that there would be no change in the tax liability of those concerned. There is a change of some significance in the cash flow position of those who benefit from the 714 certificates and who are entitled to benefit from the withholding of a lower amount of tax. I hope that the Chief Secretary will regard this as another example of uncertainty produced in the prospective rate of income tax as a result of the conditionality about the main tax change proposed in the Budget.
There are two aspects to the debate. The first is conditionality—the concept of


the House of Commons being invited to consider changes in the standard rate of income tax, but not to decide them for some months. The second concerns what is or should be the proper level of income tax as a standard rate.
It is interesting to reflect, as the idea of conditionality sinks below the waves for the last time, how important it was to the Chancellor's Budget strategy, not only this year but last year. The House will recollect the way in which the reduction in income tax was made the centrepiece of the Chancellor's Budget Statement last year and was made explicitly dependent upon the achievement of a further formal agreement with the TUC. The House was presented with afait accompli.It was regarded as a new instrument of modern Socialist man, making our tax position subject to the determination of bodies outside the House.
Therefore, this year the Chancellor, so proud was he of this device, not only presented it to his bank managers in the International Monetary Fund and said that he would again make his Budget conditional in this way, but made it clear in his Budget Statement. Conditionality was still at the heart of his Budget when we debated this matter in Committee as late as 9th May when the hapless Minister of State, in answer to a similar debate, said:
The Chancellor made the position quite clear in his Budget Statement, and it has been repeated here tonight. My hon. Friend feels that it would be quite imprudent to determine these matters until we have seen the course of the negotiations and the outlook for a pay agreement is more settled and clear. That is where the Government sstand."—[Official Report, 9th May 1977; Vol. 931, c. 1058.]
That was a robust declaration by the Minister of State. We say that this approach to the settlement of tax rates for the country is wrong in principle and inconvenient in practice. It is inconvenient in the way in which we have been discussing 714 certificates for con- tractors, and it is wrong in principle, as we have said many times, to subject the decision of the proper standard rate of tax to a body outside the House.
6.30 p.m.
Incidentally, it has another unattractive aspect, although the Chancellor may find it attractive. The right hon. Gentleman appears to get an almost endless series of

headlines telling the nation that he has made tax cuts that he has not made. When he makes his Budget Statement the headlines scream "Tuppence off" and everybody goes home euphoric and delighted. Then we are told that it is not really tuppence off and that the reduction is to be kept on ice till the TUC has considered it. The Chancellor told us last Friday that in fact it would be a penny off. Again the headlines screamed "Another penny tax cut". That may be the only justification left for the Chancellor to continue using the technique—namely, being praised in the headlines more than once for an ever-diminishing tax cut.
When these matters were debated in Committee in May my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) and the hon. Member for Tottenhain (Mr. Atkinson) said that conditionality would not survive. They both said that whatever happened in respect of the pay deal the tax cut would be made in one form or another. And so it has proved. In fact, the pay deal has not been arrived at. The social contract has melted away. Conditionality is also melting away. It was the last residual feature of the social contract technique. It gives us the opportunity for taking another affectionate look at the posture of the Liberal Party in these affairs.

Mr. John Pardoe: I wondered when the right hon. and learned Gentleman would turn to the Liberal Party. I was becoming rather lonely.

Sir G. Howe: I did not want to disappoint the hon. Gentleman, who is sitting on the Liberal Bench in not so splendid isolation.
The Government were standing firm on 9th May. The Chief Secretary had as his loyal henchman, his follower of fashion, the hon. Member for Cornwall, North (Mr. Pardoe). The hon. Gentleman said:
I accept the conditionality …What 1 do not believe is that, with the negotiations as they are now, the Government should simply hold up their hands and say to the trade unions 'We surrender. You can have anything you like. You can do any kind of deal you like, and it will not make any difference to taxation'."—[0fficial Report, 9th May 1977; Vol. 931, c. 1041.]


It seems that the Liberal Party was standing firmly and squarely alongside the Chief Secretary on the principle of conditionality. It was one of the elements of the pact. It was one of the planks of the joint edifice that sustains the right hon. Gentleman and the hon. Gentleman alongside each other. However, like so much else it has disappeared, and the hon. Gentleman is left contemplating the wreckage. Conditionality is as dead as the social contract that gave it birth.

Mr. Lawson: Perhaps my right hon. and learned Friend is being a little unfair. The hon. Member for Cornwall, North (Mr. Pardoe) and his fellow Liberals still have an opportunity to show their consistency and redeem their integrity by voting against the Government on the amendment.

Sir G. Howe: Yes. I accept that position as being logically consistent with the solemn declarations made by the hon. Member for Cornwall, North. However, we do not know what further bargaining has been taking place between the Chief Secretary and the hon. Gentleman to maintain the improper embrace that they lock around each other to sustain this curious alliance. My hon. Friend the Member for Blaby (Mr. Lawson) is entirely right to draw attention to the opportunity that presents itself to the Liberal Party today. We shall see whether logic or some other relationship is dominant in the mind of the hon. Gentleman. I would seek to have no part in the sort of consultations that take place between the right hon. Gentleman and the hon. Gentleman. So much for conditionality.
The other aspect that is even more important is what should be the standard rate of income tax for the present year. The Chief Secretary has moved an amendment to reduce it to 34p in the pound. The Opposition are proposing an amendment to reduce it to the level originally suggested of 33p in the pound.
I remind the House of the way in which the Chancellor approached this issue when he gave the nation his compact and candid insight into the Budget in his Budget broadcast. There was no qualification in his description. He said:
It is this new confidence in Britain which has made it possible for me to make really big cuts in income tax so that it is more

worth while for everybody to work that bit harder.
He continued:
The cuts in income tax should make everyone feel that it is worth while putting more into their work and getting an agreement on another round of pay policy when this one runs out.
At the end of the day the standard rate cut emerges as 1p. Of course, as the Chief Secretary has rightly said, the total package of tax cuts was originally meant to be conditional. However, an unconditional element has been brought into the mixture. There has also been a change in the level of allowances. That was imposed upon the Government in Committee. Although the threshold has been raised it still remains impossibly low.
In our view, the Government continue to approach the reductions that should be made in income tax from entirely the wrong point of view. Night after night in theatre after theatre the Chief Secretary goes forward, wrings his hands and says" Of course, we should like to raise the thresholds. We should love to cut the standard rate. We should love to contemplate the introduction of a reduced rate band. However, we are unable to do as much as we should like." The right hon. Gentleman always operates as a man constrained by fixed frontiers.
The right hon. Gentleman is rightly constrained by a responsible attitude to the public sector borrowing requirement. We wish to see that requirement being reduced steadily. However, he should not be constrained by feeling that all the expenditure to which he is committed is inevitable. He should not be constrained by a reluctance to contemplate what my hon. Friend the Member for Guildford (Mr. Howell) urged upon him in Committee and in the House previously—namely, a willingness to increase the yield of VAT by moving to a standard across-the-board simple rate of 10 per cent. with a yield of £600 million as a means of paying for a reduction in direct taxation. The right hon. Gentleman should not be constrained by a passionate determination to pour publicly raised money into oil exploitation and exploration in the North Sea through the British National Oil Corporation when oil companies around the world would love to relieve him and the public purse of that task.
The right hon. Gentleman should be committing himself to further substantial reductions in public borrowing. He should accept the logic of the argument that he was advancing so benignly in the pages of theFinancial Timeslast week—namely, that people wish to see a switch from tax on income to tax on expenditure.
It is remarkable the way in which the right hon. Gentleman addresses conference after conference of tax experts and accountants and acquires a growing reputation for his wisdom and skill in these matters. No doubt, that will stand him in good stead in the world shortly to come. He commends the change of policy that we have been urging upon them, but he always fails to come to the point of doing anything about it.
The right hon. Gentleman knows as well as we do that income tax was designed in the days of the Forsyte Saga. It has moved further and further down the income scale in the years that have passed since the war. In the early 1950s the threshold was above average earnings for a married man with two children but it is now well below half average earnings. The tax, which was designed for the Forsyte Saga, has now bitten deeply into Coronation Street. Families who should not be paying income tax are now paying it with a threshold that is too low and on a rate that is too high. It is the lowest threshold in the Western world and the highest starting rate.
We should see a determination to make a major change in the shape and nature of the burden. That is why we are pressing for the implementation of the proposed reduction that was put forward in the Budget Statement of 33p. The Government should be prepared to finance that by raising additional money, if necessary from value added tax, but preferably by reducing some of the expenditure that we regard as unnecessary. Nobody else in the Western world has a starting rate as high as 33p, 34p or 35p. Nobody else has a starting rate of more than 22p in the pound. They all have higher thresholds except for one or two countries that have starting rates of only 7 per cent. or 15 per cent. It must be right to make substantial reductions in the shape and burden of direct taxation.
The Chief Secretary, as did the Minister of State in our last debate on these issues, canvassed the possible alternative of a reduced rate band. I know that the hon. Member for Cornwall, North has spoken about this and that, like very other suggestion for lightening the burden of direct taxation, it deserves some consideration, but I do not find it an attractive direction in which to move, because the disincentive would remain high for those who began paying the standard rate above the reduced rate. In other words, the disincentive effect would be reduced only for those in the band covered by the reduced rate, and the standard rate would remain oppresively high for those above it. It could too easily be regarded as an excuse for maintaining too high a basic rate if one could point to a tranche of people who were exempted. From that point of view, reduction of the basic rate might be regarded as more preferable.
There are bound to be administrative complications as a result of the reintroduction of a reduced rate band. There would be complications in relation to dividend payments, mortgage interest payments, and so on. There would be complications also if one were contemplating any further movement in the direction of the tax credit scheme alongside the child credit scheme. The Chief Secretary will remember that that was one reason why a single basic rate was adopted earlier.
We prefer to see a switch from direct to indirect taxation given priority in itself, for its own sake, so that one can reduce the basic rate sufficiently to make the introduction of a reduced rate band unnecessary. The Chief Secretary will remember the answer given on 16th May about the proportion of direct to indirect taxation in this country. The Financial Secretary's answer, which is to be found in Hansardat Vol. 932, column 34, shows that in 1968–69 direct taxation as a percentage of indirect taxation was 81 per cent., whereas in 1975–76 the figure had risen to 123 per cent. The House is familiar with the huge switch of the burden in that direction. The tilt in the direction of direct taxation is so substantial that the main thrust of getting it back again should go in the reduction of the standard rate, and that should take precedence over the complications of introducing a reduced rate band.

Mr. E. Fernyhough: I am interested in what the right hon. and learned Gentleman is saying. He will appreciate that the incomes of several million people are so low that they do not pay any tax. If indirect taxation is increased, the standard of living of those who do not now pay income tax is automatically reduced.

Sir G. Howe: That argument has frequently been advanced over the years, but, as the Chancellor of the Exchequer said—for the first time from his point of view—in a debate last autumn—and it has been mentioned frequently in subsequent debates—because VAT, one of the main engines of indirect taxation, exempts food, fuel, transport and housing it leaves out a great chunk of essential purchases by the families to whom the right hon. Gentleman referred. It is inaccurate to speak of indirect taxation as regressive and working to the disadvantage of poorer families. For the reason that I have given VAT, with the spread that it now has, is an advantage. The Chancellor of the Exchequer has said, and the Chief Secretary will no doubt confirm this, that a switch from direct to indirect taxation would not work to the disadvantage of poorer families. The Chancellor has, I agree, gone on to say that a switch in that direction would produce an increase in the average level across the board of the retail price index that has to be taken into account, but the argument advanced by the right hon. Member for Jarrow (Mr. Fernyhough) is no longer valid.

Mr. Julian Ridsdale: Does my right hon. and learned Friend agree that, to help the poorer families, we as a country have to create more wealth? How can we do that if we do not give people on the shop floor an incentive in the form of reduced taxation to produce that wealth?

6.45 p.m.

Sir G. Howe: My hon. Friend is right. That is the underlying thrust of my argument. It is the oppressive burden of direct taxation at every income level, and the imposition of tax at 39ip, including national insurance contributions, on every pound over £16 to £17 per week earned by a single man, that we must lift and lighten. It is a burden that we must

be prepared to lighten at the expense of moving towards higher indirect taxes.
In his Budget speech the Chancellor of the Exchequer introduced into these debates a new argument that is a little difficult to follow and accept entirely, but it might have some value. The right hon. Gentleman argued that a reduction in the burden of direct taxation would have, or could be said to have, the effect of reducing the retail price index.
On 16th May my hon. Friend the Member for Horsham and Crawley asked the Chancellor of the Exchequer
what would be the effect on the retail price index if the basic rate of income tax were reduced (a) to 30 per cent. and (b) to 25 per cent., using the same calculations as he gave in his Budget statement".
The Financial Secretary replied:
On the assumption that such reductions replaced increases in wages yielding the same net benefit, a reduction in the basic rate of income tax to 30 per cent. together with the other tax reliefs announced in the Budget would be worth 4¾ per cent. off the RPI by the end of 1978, and a reduction in the basic rate to 25 per cent. would be worth 8¼per cent. off the RPI. This is before any increases in indirect taxation which might be needed to offset such large direct tax reductions."—[Official Report,16th May 1977; Vol. 932, c. 33·4]
The inflation concept that the Chancellor has introduced fortifies the argument that if one can make a substantial reduction in the standard or basic rate of direct taxation it can have a significant effect in persuading employees to accept more readily the case for restraint in pay bargaining. It can increase the incentive available to them by reductions in direct taxation, and it can, through the whole of that process, make more acceptable an increase in the burden of indirect taxation.
I am certain that that is the direction in which we have to move in our tax system. We have to continue to raise the threshold to let out of the burden of income tax as many as we possibly can. We have to get away from nonsensically high rates of direct taxation at the top of the scale, and we have also to achieve substantial reductions in the basic rate of income tax.
The Chancellor has raised the figure by 5p in the pound since he came to office. He held out the possibility of a reduction of 2p in the pound at the beginning of this year's Budget speech. He now leaves


us with a reduction of 1p. We do not think that that goes anything like far enough. Even within the framework of this Budget, given proper resolution on their part, the Government could get at least the original 2p off the standard rate and I shall in due time invite my hon. Friends to vote for that course.

Mr. Ridsdale: I am glad to follow my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) in the moderate way in which he has put forward our zeal to reduce direct taxation. The zeal that many of us have to reduce direct taxation stems from the fact that as a result of Socialist rule we see the economy of the country in a straitjacket.
The failure to get any growth in the economy is alarming and startling, and anyone who is not tied up in the bureaucratic everyday running of our country and can look back and see with clear vision what is happening realises that a succession of Budgets introduced by Socialist Governments have led to direct taxes being increased because of the inflation they have caused.
When I visit Japan, I am upset to see the difference between what is happening there and what is happening in this country. When I was there in April, I visited an exhibition at the British Export Trade Centre. 1 had crossed the Pole and I was tired. But next day I went to the exhibition. I thought that the furniture manufacturers would complain about import controls and the difficulty of getting into the market. Not a bit of it. They asked me to tell the Government when I returned home to get off their backs, because they could not compete with the present rates of direct taxation and wages.
Our direct taxation is almost double that of Japan. Our wage rates are half those of Japan. It is no wonder that the Japanese have more incentive and freedom to produce. For every 60p that our Government spend, the Japanese Government spend 20p. That is how our incentives are reduced. That is why I appeal to the Government to get our economy out of the present straitjacket. We have too much Government expenditure, which must be reduced.

Mr. Fernyhough: While the hon. Gentleman was in Japan, did he inquire

about how much of their gross national product was spent on defence and how much of it has been spent on defence since the end of the war? If he compared it with ours, he would appreciate the burden that our people carry.

Mr. Ridsdale: That is a real argument. Nevertheless, before the war when we were spending 20p in the pound we were able to spend a large amount of it on defence and compete in the world as well. Japan's defence burden is smaller than ours but it does not account for the comparative success of Japan. Their success is partly as a result of low Government expenditure.
When I visit factories in my constituency, perhaps one that has been presented with the Queen's Award, I talk to the people on the shop floor. They tell me that it is nice to see the flag going up and for them to have a piece of the cake to share, but they do not know what is in it for them. They say that they have worked hard to increase exports but still have to pay a high proportion of tax.
We must help the people on the shop floor with their tax burdens, otherwise we shall continue with the present zero growth rate. It is no wonder that there is a feeling in the unions in favour of increased wages. The Government have been spending too much. There has been a 50 per cent. increase in Government expenditure. That has to be paid for. What a pity it is that a constraint has not been placed upon the Government and that that money is not available to reduce taxation on the shop floor. That would increase our growth rate.
In Japan a 15 per cent. settlement has been made in the public sector compared with 50 per cent. settlements in this country. The inflation rate will be 9 per cent. in Japan this year. The Government say that they want to bring down the rate of inflation to single figures. Even if we achieve that with a zero growth rate, we shall still be in difficulties.
This is the challenge. This is why I say to the Government that a reduction of 2p in the pound in the standard rate of tax is not bold enough. We must switch from direct to indirect taxation, because the money that the Government need to meet their obligations cannot be cut overnight. We must ensure that those who produce the wealth of the country


have a share in that wealth and thereby increase output.
I am sorry to go on about Japan, but I have made a study of its industry. In Japan, wage negotiation is on a company basis. That means that both those on the shop floor and the management share in the creation of the wealth and in the wealth itself. Here, alas, because the wealth is shared across the board, the incentives are not there. That is why we want a reduction in direct taxation, not only for those on the shop floor but for management and for skilled people generally.
It is alarming to find that when one visits a factory in this country the managers want one to stay a little longer before going to the shop floor. That is because management is taxed too heavily. The skilled and the hard-working are constrained in a straitjacket. Until we get out of that situation, we shall not give people the incentive to go ahead.
High direct taxation causes many to leave the country to work abroad, where they find that they receive a better reward for their work. It is understandable that they should go abroad. The Government are in a straitjacket, not only because of their Socialism but because of their obligations to the IMF. I am glad that a new Conservative Government will not be long in taking over to give incentive to shop floor workers. We shall then see growth increasing and I am certain that we shall be out of many of the difficulties. Above all we must have a cut in direct taxation, but it must be a bold cut and not a petty cut.

7.0 p.m.

Mr. Pardoe: If the problems of the British economy were as easily solved as the hon. Member for Harwich (Mr. Ridsdale) indicated, there would be no difficulty in reversing the economic decline which began about 100 years ago in 1870. The fact is that in 1870 and in many of the years since then we had low taxation, and we did not solve our problems. By present standards, we had quite reasonably low taxation in the 1950s. In spite of the fact that the terms of trade then moved in our favour for a decade at least, we still did not solve our fundamental industrial problems. We were still not able to compete in the

export markets of the world and in terms of productivity.
I do not share the fondness for Japan expressed by the hon. Member for Harwich. The Japanese have done miraculous things economically, but it is an excruciatingly paternalistic society and I do not find that paternalism the least bit attractive. The hon. Member is not the only person who does business in Japan. At present, the Japanese economy is a pretty dead duck. The Japanese are therefore being forced to cut export prices to less than the bone in order to sell their products in the world markets, because they really cannot sell them at home as the domestic economy is in such poor shape.
The right hon. and learned Member for Surrey, East (Sir G. Howe) tried hard to be beastly. For internal party purposes, he actually needs to be thought to be beastly. It is a well-known principle in the Conservative Party that the Chancellor has only one thing to commend him—namely, his beastliness. Anyone who is trying to compare himself with the Chancellor, or to be compared by Conservatives with the Chancellor, must therefore be beastly too. But, no matter how hard the right hon. and learned Gentleman tries, he remains resolutely and appallingly nice. That is his great difficulty.
The right hon. and learned Gentleman and I—he may remember this it is a pity that he is not now in the Chamber—and the Secretary of State for Education and Science took part in a late-night discussion programme during the last General Election campaign. The programme was written up in one of the popular prints—theDaily Expressor theDaily Telegraph,I remember not which. The television critic said "At last—three politicians who were able to discuss the problem reasonably and at least look as though they wanted to agree at the end and might, in fact, succeed."
Let us see whether there is not some area of agreement about some of the subjects that we are discussing as a result of the amendment. The right hon. and learned Gentleman mentioned the conditionality. There are three ways at least of looking at conditionality. One is that the offer of 2p off the standard rate of income tax was a bribe to the trade unions in order to deliver a pay policy. If one looks at it like that—if it is not a


pleasant prospect for any parliamentarian —I would not call it a bribe, but I am not sure what word I would euphemistically put in its place.
Then one can say that it is a fiscal device to ensure that the balance of taxation takes account of what is happening in the rest of the economy. Here there is no doubt that pay is a very important part of what is happening in the rest of the economy. Pay is surely one of the most important factors in any Government's management of the economy. It is directly important because of the impact of pay increases on the Government's own labour costs and, therefore, on the Government's own total expenditure and on the borrowing requirement.
It is also enormously important that the Government have some idea about what is going to happen to pay, even in the private sector, because, again, the level of pay can affect the whole question of the management of the economy. As most Governments—I think even the Government in which the right hon. and learned Gentleman took part—would believe that the tax system was one of the weapons that the Government have to use for the management of the economy, it seems obvious that there has to be a link at some point between the calculations they make about taxation level and what is happening to pay in the economy, because that is so important an element in the whole question of management.
Then, perhaps, one can look at the question of conditionality as being a necessary delay, because it would be wrong to decide the final Budget judgment before knowing the level of pay. Of course, the trouble here is that, because our settlements are scattered out over the whole year, Governments never know what is likely to be the settlement on pay unless they have the kind of rigid pay policy that we have had in phase 1 and phase 2.
I understand that the right hon. Member for Lowestoft (Mr. Prior) has been pondering on these problems and is very near the point, if not quite at the point, at which he can say that he favours something which is somewhat grotesquely called "synchro pay day". If that simply means that it would be better if all pay settlements, or major pay settlements anyway, were decided in

the first three months of the calendar year, I think we would all agree that that would make many things easier. That is Utopia. I doubt whether we shall get near it, so there is not much point in talking about it. However, I understand that the right hon. Member for Lowestoft believes that to be an important factor for the future management of the economy under a Conservative Government. I look forward to seeing how the Conservatives will get from here to there. It would be interesting to see how it could be done. I accept that it would be desirable to do it if it coud be done. I am not sure whether the right hon. and learned Member for Surrey, East agrees with his right hon. Friend.
Certainly, if we were in a position to know what the major pay settlements were for the year beginning, say, on 1st April, and if we knew that at some time in early March of each year the Budget judgment could obviously be taken with much greater confidence.
Then we move to the question of the balance in our tax. Here again the right hon. and learned Gentleman made the point that our tax, certainly our income tax, is too high. His hon. Friend the Member for Harwich seemed to think that all our taxes were too high. I do not think that it is really sensible for us to keep repeating what is a myth. We still feature in the first 10 OECD countries in terms of wealth. We are about eighth in relation to the proportion of our gross national product which is drawn by the Government in taxation. Therefore, in total terms, we are not actually a high tax country. Unfortunately, it just feels that way because we take so much out through the most unpopular tax of all. That is my answer to the right hon. Member for Jarrow (Mr. Fernyhough).
It is all very well to go on saying—as, indeed, I have said in the past; I accept that entirely—that income tax is somehow more fair and just in the teeth of what we all know—that is, that people would rather pay their tax on expenditure than on income. The problem with income tax is that it is so directly perceived a tax. If one is paid weekly, as the majority of the population are, there it appears, in black and white, on the pay slip. One seems what one could have got if only someone had not deducted


that amount, and the gap between gross pay and net pay is so large that even people on a very modest level of income are now heartily sick and tired of income tax.
That is not the same thing as saying that we are a high-tax nation. Therefore, it is much more important that we should discuss the question of the balance between taxes than simply continuing to mouth the old nonsense "We are overtaxed. Dear, oh dear, we must get total tax down." The fact is that Governments do not get total tax down, and—guess what?—Governments will not get total tax down.
I do not believe any of the stuff about a Conservative Government being able to make the kind of cuts in public expenditures that will reduce the total burden of tax. When one considers all those other seven OECD industrial nations that are having to take a higher proportion of their GNP in taxation than we are—admittedly, they have higher GNPs, and it does not hurt so much when one takes it out of a higher total—I think it unlikely that we shall get ourselves into an economic situation in which we can become a low-tax country by their standards.
I think that it is now common ground in the House, with one or two exceptions, that we need to reduce income tax. We need to reduce it, as the right hon. and learned Member for Surrey, East said, at every level. We needs to reduce it as a proportion of our total tax burden. It is ruinously high at low levels of income, at middle management levels and at the top rates, where it is simply confiscation, and one might as well be honest and call it by its proper name. But if one is to bring down income tax, where is the money to come from?
The right hon. and learned Gentleman said that the Government might cut some expenditure. They might. To take another penny off income tax would cost about £450 million or 500 million, give or take a million—who cares? I do not expect the Chief Secretary to agree with my last comment. It is not his job to agree with such remarks. The necessary £450 million would have to be found from expenditure in this financial year because of all that we did in Committee.
How is the money to be obtained? Is it likely that £450 million can be cut

from current expenditure this year? If so, let us be specific and say where it is to come from, because 1 fear that otherwise it will come from capital expenditure. It is quicker and easier, as the right hon. Member for Down, South (Mr. Powell) has often pointed out, to take it out of capital expenditure. But that would be more disruptive. The money can come out of the capital programme provided that it has not been spent. At this stage in the year it can certainly be obtained from that source. Let us have from the hon. Member for Guildford (Mr. Howell) a specific answer to a specific question. If the £450 million is to come from reduced public expenditure, we all want to know exactly what public expenditure is to be cut.
I remind the hon. Gentleman and his right hon. and learned Friend that it is not good enough for Conservatives to prate about how well they did the last time they were in power. I accept that income tax was lower when they left office than it is now, but that would not be very difficult. They did not do all that well, however. They only reduced the top rate of income tax to 75 per cent., and that is hardly Utopia. As the right hon. and learned Gentleman said this afternoon, the standard rate was only 5p less then at present. Is it the target of the next Conservative Government to knock 5p off the standard rate and knock the top rate of income tax down to 75 per cent.? I do not think that that can be so. If the Conservative Party goes on about cutting income tax, it must mean that it will do more than that. We should like to know exactly what it means. I ask how the hon. Member for Blaby (Mr. Lawson)—

Mr. Lawson: Mr. Lawson rose——

Mr. Pardoe: I see that the hon. Member for Blaby, with the full authority of the Conservative Party, is to deliver theobiter dicta.

Mr. Lawson: It is to offer noobiter dicta,to put the historical record straight. The hon. Member referred to the last Government only reducing the top level of tax to 75 per cent. That was not much, he said. Is he aware that when the last Conservative Government entered office the top rate of tax was 91¼per


cent? A reduction from that to 75 per cent.—I agree that 75 per cent. is too high—is not a trifling reduction.

Mr. Pardoe: We are talking about incredibly few people at that level.

Mr. Joel Barnett: We must get the comparison right. The 91½ per cent. rate should be compared with 75 per cent. plus 15 per cent. investment income surcharge, which makes 90 per cent.

Mr. Pardoe: I thought that the hon. Member for Blaby could not add up. That is because he is a monetarist.

Mr. Lawson: We are talking about earned income. The top rate of tax on earned income when the last Conservative Government took office was 91½per cent., and they reduced it to 75 per cent. The Chief Secretary is talking about investment income, which is a different issue altogether and not what the hon. Member for Cornwall, North (Mr. Pardoe) and I are talking about.

Mr. Pardoe: It is not a different issue. The hon. Gentleman is confusing the whole question. There was a complicated change of the tax system under Lord Barber, whereby the old standard rate on earned income and the earned income relief were dropped and an investment income surcharge was created. It is not fair to compare the two.
That, however, is not the main point that I am trying to make, and the hon. Gentleman knows it. My main point is that the Conservative Government only reduced the top rate to 75 per cent. What it came down from is neither here nor there. People who are paying 75p in the pound are not thrilled by the idea that at some date in the past under some Government or other, their forebears paid 91p in the pound. They want to know what the Conservative Party, if it gets into Government, will do about the top rate of income tax. What is their target? The hon. Member for Guildford said that the target is 60 per cent. How many years will that take to achieve? How would the Conservatives replace that revenue?
We then come to the standard rate of income tax. Is it 33 per cent., 34 per cent., or 35 per cent? One takes one's pick with this somewhat strange parliamentary arithmetic. Like my hon. Friends

and the Chief Secretary, I would like to see it at 33 per cent., 32 per cent. or 31 per cent. Is there any advance on 31 per cent.? Does anybody want to go down the scale?
7.15 p.m.
We have to consider how the £450 million is to be replaced. I want a specific answer to the specific question. What do the next Conservative Government, if we ever get one, aim to do with the standard rate of income tax? Will it be 30p in the pound, or 28½? How long will it take a Conservative Government to reduce it? I would be much more impressed with Conservative policies it they were spelt out in this way.
The right hon. and learned Member for Surrey, East spoke for a whole half hour last night and set a record which ought to go into the Guinness Book of Records. It would if the place was not already taken by his right hon. Friend the Leader of the Opposition. The record is for making a long speech which never at any point states what the Conservatives are going to do about anything. Not one single, specific, constructive thing did he say. We can redress the balance now. The hon. Member for Guildford can put it right. There is plenty of time. All his hon. Friends are upstairs at a meeting and they will not want to be here to vote for a time. He can spell out the next Conservative Government's targets on personal taxation. I hope that he will take this opportunity to do so.
One of the difficulties to be faced by a Conservative Government is this extraordinary promise to scrap the domestic rate. How lovely, how popular. But what will replace it?

Mr. Peter Rees: Before the hon. Gentleman goes on to deal with the question of rating—I know that he is anxious to avenge what he would regard as the slight which his right hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel) suffered yesterday—I would remind the House and the hon. Gentleman that his party are at the moment supporting in power a Government who are prepared to reduce the top rate of income tax on unearned income from 98 per cent. to 97 per cent. and on earned income from 83 per cent. to 82 per cent.—

Mr. Ian Stewart: Not at all. That does not follow.

Mr. Peter Rees: That reinforces the point. I would not be so vulgar as to refer to the Lib-Lab pact, but we are dealing with actualities and not what might happen after the next General Election. Will the hon. Gentleman confide to the House whether he and his right hon. Friend have made it an essential article of the pact this summer that the Chancellor of the Exchequer should reduce the rate of tax on higher incomes by more than apparently has been proposed by the Government Front Bench? I think that the bona fides of the hon. Gentleman and his right hon. and hon. Friends are at stake. The House will not listen with great relish or patience to a speech of this kind unless he can demonstrate that he has pressed policies of a different nature on the Chancellor and his right hon. and hon. Friends.

Mr. Pardoe: I am sorry, but the hon. and learned Gentleman is not a fly on the wall. I will not take him wih me into meetings that the Chief Secretary and I have. He was almost asking for an invitation to those soirees, but he will not get one. They are very entertaining sessions, but he will not 'be around.
In Committee on the Floor of the House, I moved an amendment which would have had a substantial effect on the top rates of income tax. It would have introduced into our tax system what the hon. and learned Member for Dover and Deal (Mr. Rees) knows is already a vital part of the American tax system—that, whatever the top rates of income tax may be, no one should pay more than 50 per cent. of his earned income in tax. That would have had a substantial effect on the top rates of income tax.
The hon. and learned Gentleman, alas, did not join us in the Lobby. His right hon. and hon. Friends instructed him not to do so. I understand that: he has to obey when the whip is cracked. But it is a pity, because that amendment would have made a great deal of difference to the balance of our tax system.

Mr. Peter Rees: Let me put the record straight. There was no question of instruction as far as I was concerned. Although, of course, I share the hon. Gentleman's apparent objective of bringing down the higher rates of tax, his

amendment was not a well-thought-out way of doing so. It would, of course, have benefited those on incomes of £40,000 or £50,000 and above, but for those in the £19,000 to £20,000 range it would have had the curious effect that their marginal rates would have been very high and that only as their incomes rose to a certain level would the rates have dropped again. It would have had an uneven effect.
Perhaps the hon. Gentleman did not study the debates on that amendment with care, or he would have realised that the practical reasons which led us to prefer a more sensible and logical approach, which will be adopted by a Conservative administration after the next General Election. No Whip, on whatever side, will deflect me from my intention to see the higher rates of tax fall, but I want them brought down in a more considered way than the hon. Gentleman's amendment would have achieved.

Mr. Pardoe: I had hoped that I was being fair to the hon. and learned Gentleman. I was trying to give him a way out. I thought that he had espoused foolishness because he had been told to do so. Now I find that he always espouses foolishness of his own free will, which is far worse. The hon. and learned Gentleman knows—one does not need to be a clever lawyer to know this—that if one places a ceiling at any point in the income tax scale there will eventually come a point when someone's marginal rate of tax will actually start to fall. That did not stop the American Senate from introducing such a measure in 1975. I suggest that the hon. and learned Gentleman does what I have done and studies the debates in the Senate. They make far more sense than those conducted in the correspondence columns ofThe Timesand theFinancial Times—apart from the contributions I write myself.
As the Chief Secretary knows, we have supported the Budget strategy, which is a question of how much tax there is to give away. The 1p reduction brings us up to and slightly over what the Chancellor set out to give away. At this stage, it would be ridiculously irresponsible to adopt the Conservative Amendment (a). I say that in some pain, because I recognise that 2p off the standard rate of tax would be a considerable


help to middle management. It is what the CBI desperately wants this House to do. But it is what the House would have done if the Conservative Party had not tabled and voted for an amendment to change the threshold.
Everybody wants to change the threshold. I want to bring in a reduced rate of tax: I find it strange that the Conservatives do not. We all want to reduce all taxes. But surely it would have been better this time round to keep the balance as it was in the Budget. It has somehow got around that what happened in Standing Committee was due to an amendment which is sometimes called the "Morecambe and Wise" amendment. I am sorry that the two Labour Members concerned are not here. I am not attacking them, because I supported the principles on which they were working.
That amendment was not a Labour Left-wing amendment at all. It came out of the full irresponsibility of the Conservative Party in all its glory. Middle management and the CBI had better begin to understand that the reason why they will not get a 2p cut in the standard rate today is that the Conservatives ditched them in Committee. That is the fact, and that is what we shall continue to tell the nation.

Mr. Tim Smith: It is a great pleasure to follow someone as modest as the hon. Member for Cornwall, North (Mr. Pardoe).

Mr. Pardoe: They are not found very often.

Mr. Smith: It is good to know that the sessions with the Chief Secretary are entertaining, but I wonder what influence, if any, the hon. Gentleman has had on Government policy. It is hard to see how Liberal policy has affected the Government at all over the past few weeks, although I know that the hon. Gentleman regards himself as the Vice-Chancellor. It is only a few weeks since he was saying that we should have a rigid incomes policy.
I agree with the hon. Gentleman in one thing, that the majority of people would prefer to pay more of their tax indirectly rather than directly. I would also associate myself with the remarks of my hon. Friend the Member for Harwich (Mr. Ridsdale) who referred to

the skill and hard work of people on the shop floor. It is working people and their taxes to which I want to address myself.
Amendment (a) seeks, very modestly, to reduce the basic rate by a further 1 per cent. Since 1974 a combination of two factors, the increase in the standard rate from 30 per cent. to 35 per cent. and the failure of the tax thresholds to keep pace with inflation, has meant that ordinary working people have been squeezed hard. It is they who are now paying the bulk of income tax. The further adjustments that the Government have now accepted to the thresholds, and which were proposed in the Chancellor's statement last Friday and the White Paper, account for inflation only since the last Finance Act. There is still a lot of ground to be made up for that period from February 1974 to April 1976.
The tax for everybody who has to work is ruinously high. Today, theDaily Expresshighlights what it calls "the real tax rip-off". It points out that, since 1970, tax has risen 40 per cent. more than prices, and that most of that has been plied on since 1974. A man on average earnings with a wife and two children now pays three and a half times as much tax in cash terms as he did in 1970, while prices have risen two and a half times. So in terms of actual tax paid, where he paid £215 a year in 1970, this year he will pay £750.
This amendment deals with the standard rate. Between 1970 and 1974, and disregarding the reforms of the Finance Act 1971, the basic rate was reduced by 2½per cent. In the three years since 1974 it has been increased by 5 per cent. The current marginal deduction rate is 40¾per cent.—taking into account 35 per cent. tax and 5¾per cent. social security contributions—and the Chancellor now proposes to reduce that figure to 39¾per cent., but from 6th April next year social security contributions will go up again by¾per cent. to pay for the additional earnings-related pension scheme under the Social Security Pensions Act, 1975, so the marginal rate will be back to 40½per cent.
That is an excessive marginal rate, which has a massive disincentive effect, especially on overtime working. For instance, a miner in my constituency working at the coalface has a basic pay at the


moment of £70.35 a week. If he has a wife and two young children he will still be paying tax of £13 a week even after the Chancellor's revised proposals.
7.30 p.m.
We are talking about people who work hard, but where is the incentive to work hard? Where is the incentive for skilled people to make more effort when every pound that they earn in overtime will be reduced to 60p before it reaches the pay packet?
Such is the strength of feeling on this issue that I have been given a number of NCB pay slips and told to keep complaining about the deductions till something is done. In many cases the tax deduction is equal to all the other deductions put together, including national insurance, NCB pension contributions, NUM pension contributions, union dues and NCB rent.
The issue was highlighted by theDaily Mirrorwhich, in May, investigated the reasons for the Government's resounding defeat in the Ashfield by-election. Joe Haines reported on why some miners had voted Tory. One said that he was bitter about the tax stopped from his wages and bitter because after a pit accident
I made more money stopping at home than I did when I was working".
Another said that he had no confidence in the Government. Prices were going up all the time and the amount of tax that he paid on his overtime was ridiculous. A third said that he had voted Conservative for the first time. His pay slip showed a gross sum of £59.97 with a net payment of £38. He said:
If things don't alter, I'll vote Tory again. When you go to the pay office on a Friday at least a third of your wages has gone in tax.
The annual report of the NCB has been published today and Sir Derek Ezra has warned that Britain faces the possibility of a shortage of house coal this winter unless the miners increase their output. He has called on union leaders for a new productivity drive. Why should miners work harder? They have no incentive to do so. They have no local productivity scheme and they pay a marginal deduction rate of tax of 40 per

cent. on every pound they earn in overtime.
No Labour hon. Member opposite who represents a mining district will say these things that so badly need to be said. Therefore it is left to me. The miners, like other hard-working, skilled people, pay far too much tax. Amendment (a) is extraordinarily modest, and should be supported.

Mr. Ian Stewart: It must be rare for an Opposition Back Bencher to table an amendment to the Finance Bill on basic rates of tax and to have it not only accepted, but moved by a Minister. Amendment No. 10, which I tabled two or three weeks ago, has exactly the same effect as the Government's Amendment No. 95, which was tabled subsequently and which is longer and less elegant than mine, though, perhaps because it stands in the name of the Chancellor of the Exchequer, it appears higher on the Order Paper.
I recognise that by the Report stage of the Finance Bill, the Government must make clear their intentions on those tax matters where they have not done so before, but the fact that a decision had not been made about the basic rate of tax until a few days before the Report stage started is a disgraceful reflection on the way in which the Government are pursuing their economic strategy and dealing with the fundamental tax problems of millions of citizens.
I felt it right to table Amendment No. 10 in case the subject had slipped the Government's mind. I could not table an amendment to reduce the rate to 33 per cent., because that proposition had been defeated in Committee and, according to tradition, there would have been no opportunity to reintroduce it. Perhaps it was still the Government's intention to reduce the rate to 33 per cent., but they voted against that proposal and helped to defeat it in Committee.
It is against that background that we have to consider the Committee's decision on the incidence of income tax. Weeks after the Budget Statement, the Government had still said nothing concrete about the basic rate of tax and the Committee was entitled to regard that part of the strategy relating to the reduction of the burden of income tax as open for debate and, if necessary, amendment. It was


against that background that the Committee made its decision about the threshold.
At that time we were also considering the basic rate of tax. There is no difference between my Front Bench and myself on this matter. Perhaps I was just a little more modest than Amendment (a) in proposing a reduction of 1 per cent. rather than 2 per cent. It is not irresponsible for the Opposition to make such a proposal. I cannot be drawn into giving official reasons for our belief that it is possible, desirable and capable of being financed. I leave that to my hon. Friend the Member for Guildford (Mr. Howell).
Amendments to reduce the basic rate recognise, as do hon. Members on all sides of the House, that our rates of income tax are far too high at the top, in the middle and at the bottom, and that they start to bite at far too low a level of income. As my hon. Friend the Member for Ashfield (Mr. Smith) spelt out so cogently, the marginal rate of tax is far higher than 34 per cent. or 35 per cent., because we have to add national insurance payments. A marginal rate of about 40 per cent. on earned income is absurd. There is no other word for it. It is not surprising that it is having the social and economic consequences that we are now seeing.
We are determined to reduce the basic rate of income tax and the incidence of other rates at higher levels. There is a fundamental difference between the two sides of the House on this subject. I believe that the Liberal Party is with us. The hon. Member for Cornwall, North (Mr. Pardoe) seemed to be agreeing with our view.
We always get words of encouragement from the Treasury Bench, but we get very little action. The Government speak of the need to reduce the burden of personal taxes, but we must ask whether they mean what they say. It may be electorally embarrassing that so many of their erstwhile supporters are being taxed out of their loyalty to the Labour Party. That may suggest to the Government that something needs to be done, but the Government will do nothing on intellectual or social grounds or because of a sense of right, or because of their conscience. They will do it only if they are forced into doing it.
The Chief Secretary and his right hon. Friends have said many times that they do not believe in the disincentive effect of high taxation. They suggest that if rates of direct tax are increased people will work harder in order to compensate for that and to maintain their standard of living. I do not understand how anyone can believe that that is an option, given our starting levels and rates of taxation. It is not on.
This is nowhere better illustrated than in the sort of comments that many hon. Members must be getting when dealing with constituents' personal taxation problems in their weekly surgeries. When I was first elected to this House in 1974, I received a friendly letter from the inspector of taxes at Hitchin, offering to help with tax problems brought to me by constituents. For the first year or so they were mostly technical problems about whether assessments were correct, or whether there were arrears of this or credit for that, or perhaps some complicated arrangement over pension contribution deductions.
That is not the way it has been in the past year. People have been asking me to take up their tax problems, because they believe that the level they are expected to pay is incredible. They do not believe it possible for the Government to have fixed rates of tax starting at such a level that they have to pay such a high proportion of their income in tax before they see anything in their pay packets.
I dutifully go through the motions of checking whether there has been any mistake, and the inspector of taxes continues dutifully to reply with courtesy and promptness. But he confirms what we all know—that the impact of taxation, which is so worrying our constituents, is due not to calculations but to the rates of tax themselves It is widespread and it is fundamental, and it is urgent that the House should deal with the problem.
I do not want to bother with statistics —they have been ably deployed by others and the case is well known—but I hope that eventually it will sink into the minds of Treasury Ministers that this is not just a marginal issue, or one of getting tax down a percentage point, or of raising thresholds by £50 here or there. It is a massive problem, which, because of inflation has distorted the whole impact


of direct taxation to a level at which only fundamental action can set it right.
The point at the heart of the proposals about the basic rate of tax and the fact that we are talking about it at this stage of the Bill lies in the Chancellor's Budget. When he made his Budget Statement he made the proposed reduction in the rate of income tax conditional on a successful negotiation of phase 3. In the last week or so, events have made that past history. The fact is that he regarded the inflationary position of pay settlements as fundamental to his decisions and judgment about the tax concessions which he could make in his Budget. No doubt his expectations today are different from those that he had in March. He would pretend that it was otherwise; that the course that he is following is the one that he intended to take all along. Many of us beg leave to doubt whether that is the case.
The reason why the Chancellor found it so important to obtain a phase 3 settlement that would permit the reduction of income tax in the way he originally proposed—2p in the pound—was clearly his anxiety about the continuing impact of inflation. Although the overall reductions of tax now proposed are broadly similar, we are to get only 1 p off income tax if the Government proposals are carried. Therefore, I want to ask the Government a question. If inflation is as important as all that in determining the rates and levels of taxation, what are the Government doing with the exchange rate?
7.45 p.m.
The Chancellor claims that phases 1 and 2 were very successful in moderating the rate of price increases. They did moderate in 1976, but have gone op again in 1977. Was that the failure of phase 1 or of phase 2? No—it was the collapse of sterling in 1976 that brought about the increase in the retail price index in the first half of this year. The Government are sitting on the sterling exchange rate and holding it pegged at 1.72 dollars, and if the dollar is falling in value they are forcing the value of sterling down too. The pound is being forced down against natural market forces, and that is certain to make the inflation rate in the coming months higher than it otherwise need be.
If the Government are serious about getting down the rate of inflation, why do they not address themselves to those parts of their policy that are in their power to do something about? Phase 3 does not appear to be very much in their control, but there are other methods. The Government are, however, taking measures with our currency that will force up inflation, and therefore the strategy originally proposed in the Budget is being contradicted by their own actions.
At this stage, we should tell the Government that it has been demonstated that they have not only lost control of their Budget strategy, on the income tax side, but they have lost direction in the whole of their budgetary posture, and the House should be free to take whatever decisions it feels proper on this subject.

Mr. Lawson: We are talking about a number of amendments and two new clauses, one of which is New Clause 83, which has various amendments to it. I want to say a brief word about one of them before coming to the major issues dealt with so ably by my hon. Friend the Member for Hitchen (Mr. Stewart) and, in a more wayward way, by the hon. Member for Cornwall, North (Mr. Pardoe).
New Clause 83 is designed to make a consequential change in the concessionary rate of capital gains tax for unit trusts, consequential on the reduction in the basic rate. This concession implies that unit trusts ought to be treated specially. I therefore ask the Chief Secretary why it is that despite this the Treasury has continued to insist that unit trusts are taxed at the corporation tax rate on unfranked income and not at the basic rate of tax. Unfranked income in particular, comes from gilt-edged securities. It seems very strange that there should not be this modest encouragement for unit holders, through unit trusts, to invest in Government bonds, in gilt-edged securities.
I ask the right hon. Gentleman to answer this point, because it seems strange that there should be this capital gains concession on the statute book—we are now amending it slightly through new Clause 83—when there is no concession on the unfranked income.
My hon. Friend the Member for Hitchen said that the whole framework to


our discussion of the question of a reduction in the basic rate is the pay policy of the Government and the Chancellor's approach to it. I shall return to that matter, but before doing so I should address myself to the rather strange remarks of the hon. Member for Cornwall, North, if only because he is obviously very eager that I should do just that.
Towards the end of his speech, the hon. Gentleman launched into an attack on the Conservative Party. That I do not mind in the slightest. But his attack was a strange one. He said that he was going to go far and wide, broadcasting to everyone that the Conservative Party had not put as its first priority cutting the basic rate of income tax.
I have taken the trouble to see what the hon. Member said on this subject in Committee of the whole House on 9th May. Then, when the Chancellor had proposed that there should be a 2p reduction in the basic rate of income tax, the hon. Member for Cornwall, North thought that that was wholly the wrong way to go about things. He said:
What I am trying to ask is whether we should not think in terms of a lower rate band as an alternative to a reduction in the standard rate of income tax whenever that takes place.
He went on to ask
if we have just under £1,000 million at this stage of the game to play with—whether it would not be better to do it this way
—that is, by the reduced rate band—
rather than by reducing the standard rate of tax".
The hon. Gentleman went on to explain that although he preferred a reduced rate band to a reduction in the basic rate of tax, there was another possibility. He said:
Of course, one answer would be to raise thresholds.
He rejected that, reluctantly, on the ground that it might cost too much, saying that
it is a hideously expensive thing to do".
Finally, he concluded:
Even at this stage I am, on balance, in favour of the reduced rate band rather than the 2p off the standard rate of income tax."—[Official Report. 9th May 1977; Vol. 931, c. 1037-8.]
We are quite clear, then, as to the hon. Member's priorities on 9th May. His first priority was a reduced rate band of tax. If he could not have that, his

alternative was an increase in the thresholds. The one thing that he thought least appropriate was a reduction in the basic rate of income tax. Yet here he is now, two months later, saying that he is the champion of the cut in the basic rate of income tax and that it is the Conservatives whom he will expose as having suggested that there may be a case for raising thresholds.

Mr. Pardoe: The two quotations from my speech which the hon. Gentleman has read out were both put in the form of questions—whether it would not be better, and so on. They hardly sound like categorical statements of belief. Certainly I believe that it would be worth paying a very substantial price to reintroduce the principle of the reduced rate band. I am now confident that the tax system will eventually see the reintroduction of the reduced rate band, and I believe that that is an important matter. But certainly the speech from which the hon. Gentleman has quoted was in no sense a categorical statement about anything. I was talking about the three possibilities before the House. It is certainly true that I argued the case for the reduced rate band, but not necessarily to the exclusion of the others.

Mr. Lawson: The hon. Gentleman is quite clearly wriggling. He is always confident about the future, as he showed a moment ago. If he had a better grasp of the past, we might have a little more reason to share some of his confidence about the future. What he said quite clearly was:
Even at this stage I am, on balance, in favour of the reduced rate band rather than the 2p off the standard rate of income tax.
That was not in the form of a question. The hon. Gentleman was quite clearly comparing the two possibilities and saying that one was better than the other. That disposes of that matter.
The hon. Gentleman then—[Interruption.] I know that the hon. Gentleman cannot take criticism, but he must learn to do so. He went on in that speech to talk about the top rates of tax. He said that he was very much in favour of a reduction in the top rates, but again it was the Conservatives who foiled him in his attempt to bring them down.
Let us study the record again, if we may, Mr. Deputy Speaker. There is


always plenty of record to study. One of the few advantages that the hon. Gentleman has, being the only economic spokesman of a very small party, is that every time any kind of economic debate takes place he is called—quite rightly, Mr. Deputy Speaker. I am not criticising that —whereas my hon. Friends have to wait almost a year before their turn comes to speak—

Mr. Deputy Speaker (Sir Myer Galpern): Order. It is obvious, then, that the hon. Member for Cornwall, North (Mr. Pardoe) will have economic policies for each debate.

Mr. Lawson: That is absolutely true. I absolutely agree with you, Mr. Deputy Speaker. The hon. Gentleman has a different economic policy for each debate, and it is somtimes a bewildering and baffling task to follow him through the maze. We in the Conservative Party put forward amendments to reduce the higher rates of tax, and this is what the hon. Gentleman had to say on that subject:
Whatever economic and utilitarian arguments we advance for a reduction in the top rates of tax. regrettably we are politicians. The amendment…
—that is, the Conservative amendment—
calls for substantial increases this year in net take-home pay for a small, though important section of the community … Frankly, I do not believe that we could get away with that. We must take account of the feelings of the British people, who are not in a mood at the moment to accept that such increases should be made.
The hon. Gentleman went on to say that he hoped that it would eventually be
politically possible to reduce the upper rates of tax. However, as I shall argue later on investment tax, if I catch your eye, Sir Myer
—you were always the lucky man, Mr. Deputy Speaker, to hear the hon. Gentleman, and we all envy you�ž

Mr. Deputy Speaker: Order. I assure the hon. Member for Blaby (Mr. Lawson) that I have benefited considerably from being in the Chair during the speeches of the hon. Member for Cornwall, North.

Mr. Lawson: That was exactly the point I was making, Mr. Deputy Speaker. As usual, we are at one. The hon. Gentleman said that he hoped it would be
politically possible to reduce the upper rates of tax. However, as I shall argue later on investment tax, if I catch your eye, Sir Myer,

I believe that the quid pro quo for that is a heavy wealth tax."—[Official Report, 10th May 1977; Vol. 931, c. 1178-9.]
We then had a vote. The Conservative amendment was a relatively modest one, because we wanted to carry as many hon. Members as possible with us in reducing the top rate of income tax. We carried with us, indeed, the Members of the Scottish National Party and the Members of Plaid Cymru. But where were the Members of the Liberal Party? They were in the Government Lobby voting against a reduction in the higher rates of tax.
Then, very much later, the hon. Member for Cornwall, North surprised us all —although we really should not be surprised at these somersaults from him—by moving, very much later at night, a curious amendment—the most up-market amendment of them all—to have a top take of 50 per cent. of anybody's total income, which would benefit only the very richest. He moved that amendment formally, without making a speech.
We then had the task of trying to interpret what the hon. Gentleman meant by moving the amendment formally in that way. Clearly, he could not have meant that he was in favour of reducing the top rates of income tax, because we had had that debate and voted on it. We had voted for it, and he had voted with the Government against it. It could only have been a paving amendment for the heavy wealth tax of which he declared himself to be in favour and which he said was the necessary quid pro quo.
When the hon. Gentleman goes to his friends in the City, trying to gather some funds for his impoverished party, and says "Do not believe the Conservatives, it is we, the Liberals, who are trying to help you, because we put forward this amendment", perhaps his friends in the City ought to look at the pages of Hansard in order to see what really happened on 10th May 1977.
I think that that disposes of the charade of the hon. Member for Cornwall, North. Now I want to address myself, Mr. Deputy Speaker, to the proposal of the Chancellor of the Exchequer that is before us.
The whole context of the debate is really very strange. It takes place in the context of the Budget Statement, and we


have to go back to that. The Chancellor of the Exchequer said that he hoped to reduce taxation by £21 billion. He said that he was not committing himself straight away—I shall read his exact words in a moment—and that is why we are having to discuss the matter now.
8.0 p.m.
The Chancellor said:
I have explained why it would not be prudent to commit myself absolutely to this decision".
—that is, the decision to cut tax by £21 billion—
until a satisfactory agreement on a new pay policy has been reached, as I expect to happen well before the Finance Bill leaves the House. To do otherwise would be to take risks with the growing confidence which is being shown in our economy both at home and abroad—".
He continued:
In fact, it is difficult to exaggerate the advantages of a satisfactory pay agreement which makes it possible for me to proceed with the full income tax package of £2¼ billion."—[Official Report, 29th March 1977: Vol. 929, c. 283-4.]
But what has happened? There is no satisfactory pay agreement. That is accepted by the Prime Minister, but not by the Chancellor, to whom I shall return in a moment, yet he still goes ahead in cutting taxes by £2¼ billion.
That is no way for a Government to show authority. No one will believe anything that this Government says in future. The Chancellor said that if there were a satisfactory pay agreement, and only if there were a satisfactory pay agreement, he would cut taxation by £2¼ billion, but when there is not one, he still does. That makes nonsense of what the Government says. It lowers the status of the Treasury in the eyes of the nation. The Chancellor really should have resigned.
In any case, it was complete nonsense to suggest that there was no link between taxation and public expenditure. The hon. Member for Cornwall, North was at least right to say that if we cut taxes by a further £450 million or £500 million we must balance it by other taxation or cuts in public expenditure. He rightly asked, Where will that money come from? It is absolute nonsense to suggest that the amount by which taxes can be put depends on whether there is a pay agreement.
For too long the people of this country have been used to thinking that taxation and public expenditure are completely divorced from each other. The fact is that any change in one has an inexorable consequence on the other. People must learn the lesson that more public expenditure means higher taxes and lower taxation means lower public expenditure. Until that lesson is learned, we are lost.
But the Chancellor says that the level of taxation has nothing to do with public expenditure; it depends on how good the pay agreement is. That is a lesson that no responsible Chancellor or Treasury should try to instil in the minds of the people.
I said that I would refer to how we would get the money. We have made this absolutely clear. The Government could still do it by introducing a new Ways and Means Resolution, even at this late stage, and having a recommittal stage immediately after this Report stage, to move a new clause on VAT.
We have said that we would recoup the money by having a 10 per cent. rate of VAT all round rather than two tiers of 8 per cent. and 12½ per cent. That is what we would do. That is why we shall be voting for the 33 per cent. tonight because we openly put forward the counterpart.
It is not that public expenditure cannot be cut; it is rather that it takes a little time. Transfer payments such as food subsidies can be cut more quickly, but some things take longer. [Interruption.] The hon. Member for Cornwall, North tempts me to prolong my speech, but I do not think that that would necessarily commend itself to all hon. Members.
The hon. Gentleman is wrong if he thinks that capital expenditure is something that we can switch off just like that. Capital expenditure is sometimes politically attractive to cut, because all the burden goes on the private sector and the construction industry, whereas public sector manpower is not touched. But if we cut capital expenditure just like that, there is tremendous waste. As a result too, the burden is concentrated on one industry—the construction industry—apart from the disastrous long-term consequences of a sharp fall in public sector investment. That has happened under


this Government. It is public sector investment that has been cut rather than public sector consumption.
Apart from all that, there is great waste. It is nonsense to stop a road in the middle when it has not been completed or to stop a building project halfway through. There are quicker ways of cutting public expenditure.

Mr. Pardoe: I entirely agree. I agree that it is politically attractive to do this and that that is why politicians always do it. Will the hon. Gentleman say something about cuts in public expenditure? Does he think that it would be possible for a Conservative Government to cut £5,000 million off public expenditure in real terms? Has he seen the reports of the interview with his right hon. Friend the Member for Sidcup (Mr. Heath), the ex-Leader of the Conservative Party, whom the hon. Gentleman supported for so many years, in which the right hon. Gentleman said that it would be quite impossible for a Conservative Government to make these cuts in public expenditure? Does he disagree with his right hon. Friend or not?

Mr. Lawson: One curious thing I have noticed about reaction to my right hon. Friend the Member for Sidcup (Mr. Heath) is that when he was Leader of the Conservative Party, Labour and Liberal Members did not have a good word to say for him, but now that he is no longer Leader of the Conservative Party they appear to consider him to be infallible. It would be interesting to see what they would say about my right hon. Friend if he were still Leader of the Conservative Party.
I think that those hon. Members are making cheap political points and are not interested in seeking after the truth. I was saying that we are not committed to any specific sum. The hon. Member for Cornwall, North has plucked a figure of £5,000 million out of the air.

Mr. Pardoe: The right hon. Member for Sidcup mentioned it.

Mr. Lawson: Then it has been plucked out of the air by two hon. Members. That does not mean that it is Conservative policy. We shall certainly cut public expenditure. In another debate I may go

into details about the public expenditure cuts that could be made, although I cannot speak for the Conservative Party. Indeed, in debates in the past I have gone into this question. No doubt the hon. Member for Cornwall, North will look them up.
As my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said, we have now abandoned the whole business of conditionality in pay policy. We have abandoned the incomes policy and the social contract. As the Prime Minister said, we are now in a period of free collective bargaining. Incidentally, I doubt whether the Chancellor could ever get himself to talk the truth. I wish he would. The Chancellor has not been telling us that we are in a period of free collective bargaining. The Prime Minister said that yesterday, and the Chief Secretary said it today, but the Chancellor says that we are in a period of a return to normal collective bargaining.
The weasel words and uncouth manner of the Chancellor make him resemble nothing so much as a punk rock version of the right hon. Member for Huyton (Sir H. Wilson). It is something that this House could well do without.
What we are concerned with is not just language for its own sake but, as the Prime Minister said yesterday, the fact that people have to be persuaded. The language has to be right. It is no use the Chancellor thinking that he can persuade people to follow what is necessary to maintain the monetary guidelines if he makes speeches to the CBI, as he did, saying that monetarism is practised only in countries where the police have been trained in torture. When he kept on saying —vainly—that we must have a year of phase 3 before we have free collective bargaining I wondered whether he wanted another year in order to train our police in torture.
The Chancellor cannot preach against monetarism and then practice it and expect the people to be persuaded. He cannot follow an orthodox economic policy—as I am glad he is now, with free collective bargaining—and still speak the language of incomes policy. No one will believe him. No one will follow him.
The Chancellor of the Exchequer is as unconvincing now as a believer in free


collective bargaining and monetarism in the attack on inflation as Mr. Chamberlain was unconvincing as a war leader. Both were forced by events into policies with which they disagreed. The Chancellor of the Exchequer, for the first time, is approaching a correct policy, but it is not a policy that he will be able to sell. He has lost credibility, and the persuasion is not there. The language in which to sell the policy is not there.
That is why, in voting for this amendment to bring the rate down to 33 per cent., I hope that we shall show once again our total lack of confidence in the Chancellor of the Exchequer.

Mr. John Moore: It may be unwise for an innocent to intervene in this debate in the sense that I was not involved in the proceedings in Committee. However, I feel that something of an incestuous relationship may be developing between my hon. Friend the Member for Blaby (Mr. Lawson) and the hon. Member for Cornwall, North (Mr. Pardoe) and that there is now what might be described as a gap in the proceedings which may allow some of us to bring our attention back to the reality of simple tax matters.
Some of us believe that our idiotic system of taxing earned income is at the root of many of the problems that our country faces. I want to develop the theme a little, since we have the opportunity of the amendment to look at the specific proposals of the Government to amend fractionally our earned income rate of tax from 35 per cent. down to 34 per cent. This is merely tinkering with a system which is so idiotic as not to make any kind of rational sense for the sort of society which both sides of the House would like to see.
If I may say so to the hon. Member for Cornwall, North, there was not quite the degree of accuracy that there might have been in his references to the United States. In the United States, the federal system prevents an income tax level above 50 per cent. However, the combined impact of certain State taxes on income along with the Federal rate sometimes puts up the rate above 50 per cent. But hon. Members should not forget that the basic federal rate is 14 per cent. at the bottom, with a threshold which is somewhat more than twice our current

threshold rates, even when we have adjusted them, up to a maximum of 50 per cent.

Mr. Eric S. Heffer (Liverpool, Walton): The hon. Gentleman should take into consideration the lack of a national health service and matters of that kind which we have because we pay taxes of the kind that they do not pay in the United States. But if the hon. Gentleman believes in the so-called free enterprise system where the citizen pays for all his health, I can only say that, although the hon. Gentleman may be quite happy to have that sort of system, it is one which my hon. Friends and I would not accept.

Mr. Moore: One of the difficulties about expressing ignorance of that kind is that the hon. Gentleman does not realise that not only do we have to live with the reality of an impoverished system which we on this side of the House would like to see improved but that we make comparisons on the basis of totally fallacious information.
I happen to have spent many years in the United States. I have been a patient under both medical systems. The ignorant statements that we tend to get on the matter take away from a real understanding of the problems that we are now discussing.

Mr. Heffer: Will the hon. Gentleman give way?

Mr. Moore: No.

Mr. Heffer: The hon. Gentleman said that I made an ignorant statement. Will he not give way?

Mr. Moore: No, I shall not.

Mr. Heffer: Mr. Heffer rose——

8.15 p.m.

Mr. Deputy Speaker: The hon. Member for Liverpool, Walton (Mr. Helfer) knows that if an hon. Member says that he is not giving way, he is not giving way, and that is the end of it.

Mr. Moore: I shall continue to develop my argument, which concerns the difficulty in which we are trapped so much in our choices as a society by the idiotic tax structure that we have.
The hon. Member for Cornwall, North made some valid suggestions when he said he thought that it would be wiser if


Opposition Members made rather more specific comments on their own views. I do not speak with the authority of my party, of course, but the hon. Gentleman may be interested to hear my personal view and the suggestions that I have to make about the basic income tax structure.
I believe that 50 per cent. should be the maximum on earned income. I see no reason to play games with 55 per cent. or 60 per cent. In my view, 50 per cent. is simple, straightforward and easily understood. Whether we have 50 per cent. or 60 per cent. is a question of envy and not one of the revenue-raising. So 50 per cent. would be my maximum.
Clearly, we have to do a much more important job than simply dropping to 50 per cent. to take into account the opportunities to earn at the top. The bottom is much more important. I said earlier that the United States had a bottom level of 14 per cent. I should like to see us approaching that kind of threshold level. Perhaps 15 per cent. would be a more straightforward figure.
Obviously, it would be impossible to do that straight away. But if, tomorrow, we moved to a system on earned income where the base rate started at 25 per cent. and the maximum rates was 50 per cent., that would cost in lost revenue, assuming no revenue buoyancy, about £5.7 billion. That would have to be provided for. There is no way in which that kind of revenue can be disposed of overnight. But, clearly, there are dual ways of providing for it. One way is the need to identify public expenditure cuts. The other is the need to move into forms of indirect taxation.
We should be more specific on this. I represent a constituency where the clear majority of my constituents are council tenants. The ratio of council tenants to those in private housing is far higher than in any other Conservative-held constituency. In my constituency, 44 per cent. are council tenants and only 29 per cent. are private tenants.
With an average industrial wage of between £75 and £85 week, dropping the basic rate to 25 per cent. from the current 35 per cent. and the proposed 34 per cent. would result in the average married man with two children in my constituency

saving about £5 a week. In those circumstances we could begin to make adjustments elsewhere. Certainly we could save money on direct council house subsidies.
I say that because these things have to be said. Hon. Members on both sides of the House recognise the fallacious way that we discuss housing finance. I am concerned with helping my constituents and seeking to bring about a more wealth-creating society. In my view, that sort of suggestion is rather more sound than simply talking airly about what we might like to do.
We must also concern ourselves with the real product of our levels of taxation. I dislike the way the hon. Member for Cornwall, North deprecated the so-called Rooker-Wise amendment in Committee which sought essentially to raise the threshold. For example, an elderly lady came to see me the other day. She was 70 and a pensioner. She had worked for most of her life as a nurse. She had accumulated very modest savings which had gone into buying a small apartment in a building which was then purchased compulsorily by the local authority. Needless to say, the building was knocked down to make way for a new development. But, of course, there is no development there. It is now an empty site.
The lady is now in a home. The proceeds from the compulsory purchase order provide her with a small sum of money, and she is paid a small annuity. The total income does not exceed £25 a week, but the lady is now paying tax at a marginal rate of 25 per cent., which is a total absurdity. Surely hon. Members do not come to this House to create situations of that kind.
I suggest that there is something very wrong with out system of earned income. It produces a society in which we are very much concerned with redistribution. One has to examine the degree to which we are all trapped into a sense of guilt about riches. Fortunately, since I come from a poor background, I have no such guilt, and I believe that people should be allowed to break out of their poor-income background. My party in the past has been suffering from these guilt feelings and we have sought to tinker with the rates of tax, but I believe that the top and bottom rates must be massively reduced.
The hon. Member for Islington, South and Finsbury (Mr. Cunningham) has made some intelligent speeches arguing that the effect of income tax is no longer to be seen as a major redistribution of wealth. We must do more than simply tinker with the system, which is what we are trying to do tonight. We have produced a society that is geared to wealth destruction to the detriment of the wealth creators. I am talking not of unearned income but of earned income. We build in and breed class rigidity and we make absurd decisions based on an idiotic tax structure. We have become a consumption society. The figures show—I am speaking from memory—that 1.58 per cent. of household expenditure goes into savings and investment, and "savings" in general terms includes all levels of insurance. Whatever one's political views this means that we are consuming the past, whereas we should be thinking in terms of capital construction or individual contributions to the future. This cannot be the right way to manage our affairs or to look to the future of our children and grandchildren.
I have made this brief intervention merely to emphasise that we must examine on a more fundamental basis the degree to which we are currently taxing ourselves into historical relics. That is what a society that is no longer concerned with wealth creation becomes—a society dominated by its past, disconnected from the future and concerning itself with a change of rate from 35 to 34 per cent. This is an idiotic suggestion to make in an amendment.

Mr. Kimball: At the end of this debate, for the first time since the Budget, we shall know the rate of tax we shall pay this year. In the last four months we have had a most extraordinary situation because nobody has known what his rate of tax for the year will be. Normally after a Budget one sees from the newspapers or learns from one's adviser what one's liability is likely to be. This year, however, we have drifted on because the Government have not been able to make up their mind what the standard rate of tax was to be.
Whether or not the amendment is accepted and the Government carry the day, we must have no illusions as to the range of tax we shall have to pay or the rate of direct tax, which is far too high.

As my hon. Friend the Member for Croydon, Central (Mr. Moore) said, the level of taxation takes away all incentive, enthusiasm and desire to undertake any work.
On 7th May, the Economist published a table showing a typical production worker's wage. If we take the average income tax on the combined income of a husband receiving a typical week's wage and a wife earning two-thirds of that figure, we see from that table that this country—apart from smaller countries such as Sweden and Denmark—is the highest taxed country in the civilised world. Of course Japanese production is soaring ahead when we have a 33 per cent. rate of tax. Great Britain comes third in the league, with Italy, France and then Japan at the bottom of the league of the percentage of tax that is taken off a married couple. The trouble with this country today is our high level of taxation.
My hon. Friend the Member for Croydon, Central went on to cite the position of people working and earning in the United States. A Written Answer in another place only last week showed clearly the percentage of earnings retained after income tax. These are really important figures. In the United Kingdom today, on an average manual wage the percentage of earnings retained after income tax by a married man with two children is 76-8. In the United States, that dynamic country, it is 95.6 per cent. That is a terrific difference. In West Germany it is 89-5 per cent. France does even better than America with 97-9 per cent. of earnings retained after standard rate of income tax has been taken off. In Canada it is 95.8 per cent., and even in poor Italy it is 88.7 per cent. It is our position at the top of the league that causes the real trouble in this country today.
When I first came to the House, hon. Members used to complain in Budget debates that tax evasion was a matter for those who were fortunate enough to be able to get the best advice. Today, however, tax evasion or legitimate judicious mitigation of the amount of tax that anyone has to pay is the main subject of conversation at all levels of society. If one asks an employee to work overtime, one has to say "O.K. You can have it in cash." Of course it is not cash. Nobody


breaks the law. One has to tell the employee that one will pay him £50 and then add on the balance of tax for the taxman.
There is no incentive to work. Overtime does not cost the employer what it says in the wages schedule. It costs a great deal more. The level of tax has killed all desire for anyone to do any work. One simply cannot ask employees to work on Saturdays and Sundays if one has to take off the large amounts of tax that one is supposed to take off their overtime payments. All that workers are interested in is the amount of cash they will get in their packets. They feel that the amount of tax is unfair and unacceptable.
I do not know what the official policy of my party is on the level of indirect taxation that we would be prepared to tolerate, but I would be happy to see a level of VAT at about 20 per cent. provided we could remove very large numbers of people from the pay-as-you-earn category altogether. I agree with my hon. Friend the Member for Croydon, Central and wish that we could see a top rate of tax on earned and unearned income of not more than 50 per cent. That is the only way we shall restore industrial prosperity in this country.
The way in which the percentage of direct taxation has risen in the last few years is extraordinary. In the financial year to 5th April 1964, income tax accounted for 44 per cent. of total tax revenue. Today it has risen to 54 per cent. I believe that 2p on value added tax brings in about £650 million to the Treasury in a year. The Chief Secretary will correct me if I am wrong.
We obviously cannot slash public expenditure just like that. We cannot stop all the public works programmes, new roads and schools in mid-stream. We must raise the money from somewhere. I should be happy to see it raised by a substantial increase in value added tax so that we could achieve a worthwhile reduction in income tax. By no stretch of the imagination can any one of the amendments before us be considered as seeking a worthwhile reduction in income tax.

8.30 p.m.

Mr. Kenneth Lewis: My hon. Friend the Member for Gainsborough (Mr. Kimball) was entirely right when he said that the chief topic of conversation wherever one goes today is "How can I get some money without having to pay tax on it?"
This morning a small builder told me that 80 per cent. of his building force were self-employed. There has been an enormous increase in the numbers of self-employed in recent years. I was told by this builder that the self-employed in his work force were not earning much more than his ordinary employees. But the self-employed get the advantage of being able to count against tax such items as cars, telephones and so on.
My hon. Friend the Member for Croydon, Central (Mr. Moore) was also right in saying that the Chancellor, by deciding not to reduce the tax rate to 33 per cent., was making a meaningless cut, because the extra amount that people will get in tax cuts in their pay packets at the end of the week will not mean very much to them.
The country has lost confidence in the Government. Recent by-elections and polls show that. Indeed, the House of Commons shows it, because the Government have had to do all kinds of wheeling and dealing with the Liberal Party to make sure that they get their votes in the Lobbies, even on the Finance Bill. That is bad enough in all conscience. But when we come back in the autumn after the Summer Recess we shall still have a Government in which the country has no confidence and in which we have no confidence either.
The worst feature of this situation, however, is that the Government have lost confidence in themselves. We are now being controlled by a Treasury Bench that has no confidence in itself. I shall explain why I think I can prove that. The Government are dropping the incomes policy. Yet the Chancellor clearly said that he will try to hold the line on wage rises at 10 per cent. in the public sector. But if the Chancellor cut income tax, he would more easily be able to hold to his 10 per cent.
There are two ways in which people can get more money in their pockets. One


is by getting a pay rise of 10 per cent., 15 per cent. or whatever it is. Naturally, the unions will press for their members to gain more than 10 per cent. if they can get it. The second way in which it is possible for people to get more money in their pockets is by the Government cutting taxes. If there were a meaningful reduction in income tax, neither the unions nor the ordinary man and woman on the factory floor would need to ask for rises of more than 10 per cent. The Government have lost confidence in themselves because, with all the opportunity in the world to give more tax money back to ordinary men and women on the shop floor so that they need not then ask for increases of more than 10 per cent. in wages, the Chancellor has failed to take advantage of those opportunities.
The Chancellor has failed because the Government have no real belief that by so doing production would be increased. If the Government were to reduce taxes by two points or three points instead of one point, they would be taking a deliberate risk. However, if they could increase productivity by even a minimum amount—always possible if incentive is provided our— unit costs would be reduced and the Government would get back their tax cut money. In that way the nation would be increasing its output and its exports and by the end of the fiscal year the Government would have even more revenue in the kitty. In addition, the balance of payments would be better.
The truth is that we have had a succession of Governments—I suppose that it started way back in 1964–70—who have produced Finance Bill after Finance Bill with tax increases and never any reductions. The people now believe that there is no possibility of getting any meaningful reduction of their taxation. That is why they follow union leaders who say that they must ask for the maximum pay increase in the hope that they will get rises somewhere in the middle, although that middle is usually beyond what any Treasury Bench wants them to have and is sometimes more than the country can afford to pay.
The only way in which we shall get out of the cycle is to have a Government who decide that they will take the risk and reduce taxes on income. Taxation

has to be reduced right down the line. My hon. Friend the Member for Croydon, Central said that we should reduce the top rate of income tax to 50 per cent. I agree. However, if I were given the choice of bringing some people out of taxation and reducing the top rate to only 60 per cent. or 65 per cent., or reducing the top rate to 50 per cent., I should rather remove and reduce to 60 per cent. or 65 per cent. and take lower levels out of tax.
It is of advantage if we can allow those at the top rate of tax to keep something moving towards 30 per cent. of their income. It is also an advantage if we can take those at the lower end right out of the tax range. If that can be done, the administrative costs are reduced and we remove a situation in which people can say that it is best to be on social security or unemployed benefit. Unemployment pay and social security benefits do not attract tax, whereas many today pay tax although they are at the lower end of the scale of pay.
I believe that Nye Bevan once said "Why look into the crystal ball when you can read the book?" I have not always agreed with Conservative Governments in the past. They have sometimes increased taxes more than I would have liked. However, if we look back at the 15 years of Conservative Government before the Labour Party began taking office, excepting the years 1970–74, in every one of the 15 years tax levels were lower than their present levels by more than 50 per cent. If anyone does not believe that we shall cut taxes, they should look at that record. They can read the book. We did it before and I think that we shall do it again.
I am sure that we must do it again. We shall not get the country off the ground, increase productivity, restore enthusiasm and ensure that skill is rewarded until a Chancellor reduces the standard rate of tax right down the line.

Mr. Deputy Speaker: The debate has gone on for some time, and I think that it would be for the benefit of hon. Members who have only recently come into the Chamber—because they were engaged elsewhere—if I were to remind them of the amendments under consideration. We are debating Amendment No. 95 and those listed with it on the Amendment Paper.

Mr. John Cronin: I am grateful to you for your guidance, Mr. Deputy Speaker.
I listened to the speeches of the hon. Members for Croydon, Central (Mr. Moore), Rutland and Stamford (Mr. Lewis), and Gainsborough (Mr. Kimball). I was astonished to hear the hon. Member for Rutland and Stamford say that the Government lacked confidence. We have the most confident Government that we have had for years, and my right hon. Friend the Chief Secretary is the most confident person in the House of Commons.

Mr. Kenneth Lewis: That is because the right hon. Gentleman is looking forward to his holidays and will not have us here for the next two or three months. Were that not so, he would not be confident.

Mr. Cronin: It is the confidence of a person who has for some time been running the financial affairs of this country with skill and distinction.
I sympathise with the three Conservative Members to whom I have referred. Paying income tax is extremely unattractive. I speak as one who received a large demand only this morning. One can always win political points by saying that taxation should be reduced, but what worries me is hearing Opposition Members talk about a top rate of income tax of 50 per cent. That would mean enormous gains for the richest members of the community, and such statements cannot help but reinforce the impression that Conservative Members are concerned chiefly with providing benefits for the rich members of our society. I have not heard any Conservative Member say what can be done to help those who are caught in the poverty trap.

Mr. John Moore: I made the point specifically that little revenue would be lost by lowering the figure to 50 per cent., but that the important thing to do was to reduce the figure at the bottom of the scale. The only example that I gave, which indicates this point, was of someone in receipt of £25-plus a week.

Mr. Cronin: It is clear that I was doing the hon. Gentleman an injustice. I arrived in the middle of his speech, and he must have said that before I entered the Chamber. I am glad that there are hon. Members on both sides of the House

who realise that at the bottom end of the scale there are people who are paying much more tax than they should, and to that extent are caught in the poverty trap. But that does not mitigate the argument that there is no reason why people at the top end of the income group should have this enormous extra wealth given to them, as suggested by hon. Gentlemen on the Opposition Benches.
One has to face the fact that, come what may, income tax is, to a substantial extent, a deflationary financial measure. At a time of massive inflation it is helpful, in general economic terms, to cut purchasing power, although nobody likes that to be done, and it is unattractive. Any Government can obtain political support by cutting taxes. One of the things to be said for the present Government is that, realising the presentl economic situation, they have not been prepared to make any substantial reductions in income tax despite the obvious political advantages of doing so.
The hon. Members for Rutland and Stamford and for Gainsborough referred to the disincentive effect of income tax. I very much doubt whether it has a disincentive effect, because if a man receives his wages less 35 per cent. there is an incentive for him to earn still more rather than forgo the extra income that he can receive thereby. This was carefully discussed some years ago by the Royal Commission on the taxation of incomes, which came to the conclusion that there was no real evidence that income tax had a disincentive effect on the earning power of the mass of the population.
8.45 p.m.
There hon. Member for Croydon, Central referred to the desirability of achieving an economic situation similar to that of the United States. He should bear in mind that in the United States there is more poverty and fewer social services than in any other civilised Western country. If one is earning a low income and is seriously ill in the United States it is catastrophic. The hon. Member's argument is in favour of subjecting the lower income groups to a more disagreeable life.
There is an excellent case for maintaining taxation at its present level. Perhaps the Chancellor of the Exchequer will, next year, decide that a reduction


would be helpful. However, I suggest that now—when we must combat inflation and meet the expense of essential social and other services that make this country a place where those on low incomes are well cared for—there is no case for a substantial change in taxation other than that which the Chancellor of the Exchequer has proposed.

Mr. John Cope: The hon. Member for Loughborough (Mr. Cronin), made much play of the enormous gains that would result for the richest members of the community if there were a decrease in the top rate of income tax. That has been argued many times before by other members of the Labour Party. I heard the speech of my hon. Friend the Member for Croydon, Central (Mr. Moore), and I can confirm that that was not the nub of his case. The reason that this appears to be the effect is the enormous penalties now being paid by high income earners.
I am not sure that there is any more logic in saying that there would be enormous gains for the high income groups than there is in saying that there are tremendous penalties being paid by those on high incomes because of our high scale of taxation compared with other countries.
There is something in what the hon. Member for Loughborough said about the willingness of people to make sacrifices and to work hard if there were reductions only in the top rate. Clearly that would have a cosmetic effect. But we must distinguish between that and the real argument.
It is because of that effect and because of the morale effect that I should like to see not only reductions in the top rate but a more even arrangement of improvements in income tax rates. I think that the hon. Member for Loughborough did himself a disservice to discount as much as he did the disincentive effect of taxation. I remember the Radcliffe Report, but that was over 20 years ago, and things have changed a good deal since the last Royal Commission on taxation.
There is little evidence of which I am directly aware, of an academic sort, that proves conclusively the disincentive effect of high taxation. Nevertheless, one has only to talk to people in pubs, streets, or elsewhere—in Loughborough or anywhere

else—to realise the reality of the disincentive effect of the sort of rates of taxation that we have at present. I am talking not only about the top rates but about the very high starting point, which is the subject of the amendment, because the standard rate of tax is also the starting point of tax in our system.

Mr. Cronin: I am trying to follow what the hon. Gentleman is saying, but the argument about whether taxation has a disincentive effect must depend on much closer reasoning than what people say in pubs. The hon. Gentleman must produce a better argument.

Mr. Cope: I do not think that whether one can prove something statistically makes it right or important, or that if one cannot prove it statistically, it makes it unimportant. What matters concerning incentive or disincentive effects is what people perceive to be the effect, and the way in which that is reflected is in their behaviour and so on, but also in what they say in pubs or anywhere else. The fact that there is no statistical evidence for either argument, for or against the proposition, does not necessarily mean that the proposition is not valid by itself.
We also have to bear in mind—this is a fundamental point that runs through the whole debate—the real reason why income tax has become so high and why it has risen to such a large proportion of the revenue as a whole. My hon. Friend the Member for Gainsborough (Mr. Kimball) referred to the percentage of revenue that income tax now raises and the amount by which it has increased. The primary reason for that is inflation.
I remind the House again that before any Budget changes were suggested, the yield of income tax was expected to rise from £15 billion to very nearly £18 billion. All the changes that are being proposed today or have been proposed in this Finance Bill, in Standing Committee, and on the Floor of the House for that matter, would not get income tax back to last year's yield or anything like it. Inflation has increased it, this year as in previous years, by a tremendous amount—so much so that income tax this year, although it will not rise to £18 billion, because of the changes that nave been made today and recently, will rise to £17 billion.
The next largest tax in the list is VAT. This contributes only f31,- billion. That is the measure of the tremendous weight of income tax by comparison with the other taxes in the list.
Some may think that talk of top rates of tax of 50 per cent., reducing the standard rate, and so on, is rather theoretical talk. However, I happen to have had the advantage of having just returned from a country that has a top rate of tax of 48 per cent. and a very high sales tax in order to balance it.
I have just returned from Rhodesia. There are many interesting things about Rhodesia and many ways in which it differs from this country. One of the ways in which it differs is that it has a siege economy, not by its own choice but by imposition from here and elsewhere. Rhodesia is in the middle of fighting a serious war. It has tremendous public expenditure problems as a result. But the Rhodesians have been able to keep their top rate of income tax down to 48 per cent. on all incomes, partly because they raise more money by indirect taxation.
One of the results of that is that their economy has remained much more dynamic, in spite of their problems, and this is a message for us. Incidentally, when they decimalised the Rhodesian pound it was divided into two dollars. The Rhodesian dollar is now worth almost £1 sterling. That is a measure of the success that Rhodesia has had in the last few years in spite of its special problems in the handling of its economy.

Mr. Cronin: The hon. Gentleman must be aware that Rhodesia's economy is based on something very close to a slave State. He ought not to use that as a serious argument in discussion of taxation.

Mr. Cope: It would not be appropriate at this stage to follow the hon. Gentleman's argument too widely. I disagree with his proposition.
All the amendments that we are discussing are concerned with very small changes in the rates of income tax. Over the next few years we need to talk not only about small changes such as those but about much larger changes.

Mr. David Howell: It is a good thing that the opportunity has been given to us by the Report stage of the Finance Bill to discuss at some length, the standard rate of income tax and the amendments that propose changes in it. I say that because I believe that the level of personal income tax, and particularly the way in which the standard rate bites into the weekly wage packet or the monthly salary slip, is one of the key issues in the country. I do not think that it is the prime issue, because I suspect that the main issue is still the appalling rises in prices in the shops. That is still the number one worry in most family budgets and around most breakfast tables.
I suspect, however, that very close behind comes the issue of the deductions from the weekly wage, and mainly the deduction of income tax. But, as hon. Members, including my hon. Friend the Member for Ashfield (Mr. Smith) in an excellent speech, have rightly pointed out that is not all. To that must be added the weekly national insurance contribution which, even if the amendment is carried, will put the marginal rate of deduction on the pound earned by those on far below average earnings at a rate unchallenged and unequalled anywhere else in the world.
The issue that we are discussing, which is raised by the proposed Government amendments, to which we have in turn put down amendments, is fundamental. It is therefore right that at the close of this Session Parliament should have an opportunity to discuss this major issue. The amendment which was moved by the Chief Secretary is, as my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said, the vestigial remnant of what has been called the "prudence deal". That was the statement by the Chancellor that prudence requred him to ensure a satisfactory pay deal before he could cut the standard rate from 35 per cent. to 33 per cent. Now, all that has gone, it is water over the dam and the language is meaning less in the new context into which the Chancellor and his colleagues have been washed by events.
9 p.m.
The Chief Secretary alluded to the proposition that a reduction in the standard rate might help moderation in pay. That was an archaeological remnant of a past way of thinking which is clearly


still embedded in his mind. I do not blame the right hon. Gentleman. He has been trained to sing a different tune and to put forward different arguments for years, and it must be a trauma suddenly to have to change. So it was not surprising to hear in his speech the relics of the old order, when it was believed that a deal could be done with the unions to ensure pay moderation and that conditional tax cuts could secure it.
As we have made clear since the Budget, we reject the doctrine of conditionality. We do not believe that that is a proper way to conduct the tax affairs of this nation or for Parliament to secure the tax rates which the citizens should pay. Conditionality was never part of our creed and we are glad to see it go.
The hon. Member for Cornwall, North (Mr. Pardoe) said that there were three ways of loking at conditionality. It sometimes seems that the Liberals have three ways of looking at everything nowadays —last week's, this week's and next week's. Sometimes, on some issues it seems that they have 63 ways. [Interruption.] I am trying to be nice to the hon. Gentleman. I am very sorry to hear that he is in pain, but I am not surprised after all his contortions.
This is all the language of "social contract man", who is now as dead as the dodo; that is the end of that approach to policy. The sooner that the Chief Secretary and the hon. Member for Cornwall, North, who is for ever with him—perhaps not for ever, but for the moment at least—understands that that view of public policy is over, the better we shall be able to address ourselves to the issues of the proper levels of income tax.
I have spent some time on conditionality, as did my right hon. and learned Friend, because it is important to establish how the Chief Secretary will look at income tax and other taxes in future. The level of income tax and the question whether there is still some supposed deal to be done with the unions are directly connected with the issue of the wealth tax, which according to recent reports is again very much a starter.
We understand that the Chief Secretary is a member of a liaison committee with the TUC—not the one with the Liberals —which has been cooking up the wealth tax. [Interruption.] As the right hon.

Gentleman says, he spends all his time now liaising with bodies outside the Government to make these arrangements. There appears to be some residual hankering after the idea that a wealth tax will induce the unions to come back into the deal game. I do not think that it will. This is a wrong approach, and the sooner we can all—including Treasury Ministers—get it out of our minds, the better for public policy.
One argument is that a wealth tax would be marvellous because it would enable Governments to ease the burden on income tax. It is that sort of argument that has led the Liberal Party to embrace the idea of a wealth tax. 1 understand that the Liberals are keen on it. Presumably the hon. Member for Cornwall, North and the Chief Secretary use the Lib-Lab liaison meetings to work out the details of a wealth tax. It is a good issue for the Chief Secretary because it is the one subject on which, until we see the small print, he can get agreement from the Liberal liaison committee and the TUC-Left-wing liaison committee. There is agreement from the Liberals right across to the Left wing on a wealth tax. Of course, Left-wing hon. Members want a wealth tax for different reasons and in a different form from that wanted by the hon. Member for Cornwall, North. I understand that the Labour Party Left wing, and some members of the various liaison committees in which the Chief Secretary spends all his time want a wealth tax as an addition to existing taxation. They do not concede that there is already a tax on wealth. The hon. Member for Cornwall, North wants a wealth tax instead of income tax, but only a party with the bottomless gullibility of the Liberal Party could fall for that arrangement. It is clear what sort of spider's web they are walking into.
The hon. Member for Cornwall, North knows that there will not be any substantial cut in income tax under a Labour Government.

Mr. Pardoe: Just wait and see.

Mr. Howell: There never has been and there never will be. The Chief Secretary comes virtuously to the Dispatch Box to put before us the delights of moving from 35 per cent. to 34 per cent. The hon. Member for Cornwall, North should remember that the Government started at


30 per cent. Now we are asked to clap hands because they have made a 1 per cent. reduction.
We have always argued that we look for major cuts in income tax. It is common sense that this will cost substantial sums, particularly if there are cuts in the standard rate. My hon. Friend the Member for Croydon, Central (Mr. Moore) pointed out in his excellent speech that cuts at the higher rates would not cost any money and would probably increase revenue. However, there would be a political price to pay. Substantial cuts in the basic rate would cost a substantial amount, and we have to look at the constraints in the way of achieving that goal and how to overcome them.
First, there is budgetary restraint. The public sector borrowing requirement is a critical and crucial restraint that must not be put aside. On the other side of the budget equation is the public expenditure restraint that we have already debated today. My hon. Friend the Member for Gainsborough (Mr. Kimball) pointed out that, contrary to the enormous slashes in public expenditure in the past year, a sensible approach to public expenditure policy must be gradual. Anyone who says that there should be thousands of millions of pounds worth of cuts in public expenditure just like that does not understand the right approach to public expenditure policy. What has happened in the past year is a good example of a Government who do not understand that. After a long delay, they were eventually forced into making violent and disruptive public expenditure cuts.
Another constraint is the other forms of revenue, the main one of which is VAT. We have argued that our wish immediately to reduce taxation could be responsibly covered by increasing VAT to 10 per cent. Even if that were done now through the regulator, it would generate enough revenue to finance our amendment without offence to the public sector borrowing requirement. It is fiscally and financially responsible and could be done now. It will not be done under this Government because they do not really believe in cutting the standard rate of income tax. That is their belief, and that is why they are not pursuing the kind of amendment that we have put down.

Mr. Cronin: The hon. Gentleman is puzzling me. For the last year or so we have heard impassioned pleas from the Opposition to cut public expenditure. Now we hear from them that it is being cut too much so that the whole economy is being disrupted.

Mr. Howell: I shall put it in the kindest way and say that the hon. Gentleman is mishearing me. There have been substantial cuts, and we look for further cuts. But I have said that common sense dictates that the further cuts have to he more gradual than the hiccups and slashings of the last year. The hon. Gentleman is distorting what I say.
The other question which is asked about cuts in income tax and a switch to a higher rate of value added tax is whether it would not hurt the poorest in our community. We believe that question to be perfectly sincere and a correct one to put but that it is based on a previous era in the pattern of taxation. Nowadays—incredibly, almost unblievably to visitors from abroad—the vast majority of our people, down to the most modest wage earners, and even the single man with only £26 a week or so, pay income tax. We have reached the stage as the Child Poverty Action Group has said, at which income tax has become the enemy of the poor. It has become a regressive and not a progressive tax. Attempts to reduce the rate and raise the thresholds are now as much help to people on modest wages and salaries as to anyone esle. That is why we go along this road with confidence, in the knowledge that our proposals would help the vast majority of working people, especially those on lower wage levels.
Secondly, the increase in VAT would be far less regressive than, traditionally, indirect taxes were supposed to be, because VAT does not apply to food and transport, food in particular being a major item in the household budget. Therefore, the transfer between the two taxes, while obviously there are some unfavourable effects— I would not assert that no one could be hurt, because that would be absurd—far from being an attack on those with lower incomes, would have the opposite effect because it is income tax that is biting into wages at all levels.
The third reason why we are confident that we are pursuing the right policy is


that we must get back incentive. Unless we are prepared to put incentive back into the system again, we shall not get the business revival, particularly at the smaller end where the jobs will be. Only by incentive can we restart the business heart of the nation. We hear talk—it may be sincere or not—about the need to restructure this industry or that and about grand industrial strategy. But the reality is that in the great manufacturing industries in this country, just as in places like Japan and Germany, there will not be millions of new jobs. They will have to be found in services, in new businesses that people cannot even categorise and describe yet and in all sorts of commercial undertakings which will employ only a few people each but which will provide future employment, which is so desperately needed, particularly for our younger generation. These are the people who need lower levels of income tax.
Those are the three reasons why we have no hesitation in pushing for a lower standard rate of income tax and why we intend to work for lower levels still. In Committee the hon. Member for Birmingham, Perry Barr (Mr. Rooker), who played some part in our proceedings, supporting some of our amendments as we did some of his, turned to some of his colleagues and reminded them that they were allowing, through their blindness to the impact of income tax, the issue of income tax to become a major bitterness within the Labour Party and that many people who had previously voted Socialist were not going to do so again.
The hon. Gentleman recognised the point and the Government should recognise it too. Until they recognise it, they will not be at the heart of our economic problems—that is, that the level of personal income tax is too high on working people, business people, investors and those who have new ideas for the creation of new jobs and services. We must get it down, and if it means changing the level of VAT we are ready to do that.
That is why we are prepared to pursue our amendment, and that is why I advise my right hon. and hon. Friends to follow me into the Lobby on it.

9.15 p.m.

Mr. Joel Barnett: With the leave of the House, may I say that whenever I

listen to the hon. Member for Guildford (Mr. Howell) describing me in the graphic words he chooses to use on these occasions I can never recognise myself. But one thing is absolutely clear. He is obviously very jealous of the many liaisons I have—with the TUC, with the Labour Party working party, and with the hon. Member for Cornwall, North (Mr. Pardoe).
I do not know whether the hon. Member for Guildford was inviting himself to our meetings, but I have to tell him that I am not prepared to invite him. I am enjoying the meetings and I do not seek to widen them. I note his envious looks at these liaisons. I assure him that they are going very well. Indeed, last night's vote and the increasing majorities that we enjoy in the House of Commons are clear indications why the hon. Gentleman is so envious of these liaisons.
On the general question of direct taxation, and the point made by the hon. Member for Croydon, Central (Mr. Moore) and many others, income tax levels in this country, at both the very lowest and very highest levels, are too high; I do not dispute that, and never have. I want to see them reduced. But we need to understand that 1 p off the basic rate of income tax costs about £500 million. When hon. Members talk about massive cuts in income tax they should be honest with this House and with people outside and say specifically where and how they propose to raise the sort of money of which they talk so glibly.
No one in this debate or in any debate on previous occasions has told us precisely in what way it is proposed to raise this sort of money. I shall come to some of the points made by the right hon. and learned Member for Surrey, East (Sir G. Howe) and by the hon. Member for Guildford about how they would seek to reduce direct taxation, but let me first take up the initial point made by the right hon. and learned Member concerning the problems of conditionality. It seemed from what he said that he is not the slightest bit interested in having any kind of understanding with the trade union movement. He is not interest in creating the sort of climate in which it is possible for the Government to talk to he trade union movement, and continue to talk to it.
The right hon. and learned Gentleman talked about the procedures that we have, and the fact that only tonight, at this part of the Report stage of the Bill, are we settling the basic rate of tax. He said, I think, that it was inconvenient to settle it at this late stage. I am bound to tell him that the House of Commons has always had the opportunity of deciding the basic rate of tax and changing it on Report. That was always the prerogative of the House of Commons, and it will remain so whether we have conditionality or not. That is the situation, and I hope that we shall continue to live with it, because that is the way in which this House of Commons works.
The question then arises: what should be the basic rate of income tax, and how can we reduce it at this stage? The right hon. and learned Gentleman did not dispute the fact that the borrowing requirement could not be increased. He said—and his hon. Friends supported him—that what we should do is to increase the rate of value added tax. That was a constant theme.
I am bound to tell the House that we have had suggestions to increase value added tax on so many different occasions and on so many different amendments, in Committee upstairs and on the Floor of the House that it would take an increase of VAT to 20 per cent. to raise the sort of money that he and his hon. Friends have wanted to spend during the passage of the Finance Bill—and, indeed, to cover the areas in which he wishes to increase public expenditure. It really is nonsense for the right hon. and learned Member for Surrey, East to talk about this as some kind of simple way of reducing the basic rate of tax. He knows that that simply is not true.
But there is a problem about the balance between direct and indirect taxation. I do not dispute that. I have never disputed it. I said during my speeches on the Finance Bill and on the Budget that we have to switch from direct to indirect taxation as fast as we can. However, at a time when prices are of crucial importance in order to ensure that in the next pay round we have moderate pay claims, and when we want to moderate the rate of price inflation, it is absurd to suggest that the Government or House of Commons should want to see that moderation

while at the same time deliberately increasing the level of prices. It must be nonsense to suggest that this should be done at this stage.
Several arguments have been deployed during this debate, and in the past, that by reducing the level of income tax all our problems will be answered. I wish it were as simple as that. We have had periods in our history in this century when the level of income tax has been considerably lower than at present. But our comparative industrial performance with America, Japan and elsewhere has been bad when our levels of direct taxation were much lower than they are today.
To suggest that somehow or other a simple panacea exists whereby we can transform the whole of our industrial performance is nonsense, which should not enter into our debates.
We want to see reductions in direct taxation, but let us make a sensible case for them and not suggest that it will solve all our problems. If it were that simple it would have been done a long time ago. The comparison with the United States and Japan is, of course, a bad one. Net take-home pay and living standards in both those countries are very much better than in this country.
As my hon. Friend the Member for Loughborough (Mr. Cronin) and several other of my hon. Friends said, there are two basic problems. One can, of course, reduce the level of direct taxation if one is prepared to cut public expenditure by a very substantial figure. It is possible to do that. It is possible to give a man on £40 or £50 a week—this applies in my own part of the world where average earnings of £70 or £80 a week are difficult to comprehend—an extra £2 or £3 a week in his take-home pay. But if we charge him £10 a week when a member of his family stays in hospital, that is not much help.
I was interested to note that the right hon. Member for Sidcup (Mr. Heath), with his traumatic experience, recognised this problem in a recent television programme. He said, and it is worth quoting:
If efforts were made to cut it"—
that is the level of direct taxation—
by £5,000 million now there would be major problems. It would undoubtedly mean seriously cutting social service benefits.


We all know that is the case, yet that is what the right hon. and learned Member for Surrey, East is saying. [Interruption.] Perhaps I should spell it out for the House and for the country. [Interruption.] What exactly is the right hon. and learned Gentleman saying?
The hon. Member for Guildford said that there have been substantial cuts in public expenditure. I have been responsible for presiding over many of those. I do not apologise for that, because I believe that it was necessary.
But to suggest that at this moment we can—

Mr. David Howell: Too late.

Mr. Barnett: The hon. Gentleman should stop muttering. Perhaps he will tell us where he will raise the thousands of millions of pounds. I shall spell it out. What he proposes to do is cut social service benefits and transfer payments.
The hon. Member for Blaby (Mr. Lawson) has a lot of influence on the Front Bench, perhaps more than he

Division No. 205]
AYES
[9.25 p.m.


Adley, Robert
Corrle, John
Hamilton, Michael (Salisbury)


Aitken, Jonathan
Costain, A. P.
Hannam, John


Alison, Michael
Critchley, Julian
Harrison, Col Sir Harwood (Eye)


Amery, Rt Hon Julian
Crowder, F. P.
Harvie Anderson, Rt Hon Miss


Arnold, Tom
Dean, Paul (N Somerset)
Haselhurst, Alan


Atkins, Rt Hon H. (Spelthorne)
Dodsworth, Geoffrey
Hastings, Stephen


Awdry, Daniel
Douglas-Hamilton, Lord James
Hawkins, Paul


Bain, Mrs Margaret
Drayson, Burnaby
Hayhoe, Barney


Banks, Robert
du Cann, Rt Hon Edward
Henderson, Douglas


Bell, Ronald
Durant, Tony
Heseltine, Michael


Bennett, Sir Frederic (Torbay)
Dykes, Hugh
Hicks, Robert


Bennett, Dr Reginald (Fareham)
Eden, Rt Hon Sir John
Higgins, Terence L.


Berry, Hon Anthony
Edwards, Nicholas (Pembroke)
Hodgson, Robin


Biflen, John
Elliott, Sir William
Holland, Philip


Biggs-Davlson, John
Emery, Peter
Hordern, Peter


Blaker, Peter
Eyre, Reginald
Howe, Rt Hon Sir Geoffrey


Body, Richard
Fairbairn, Nicholas
Howell, David (Guildford)


Boscawen, Hon Robert
Farr, John
Howell Ralph (North Norfolk)


Bottomley, Peter
Fell, Anthony
Hunt, David (Wlrral)


Bowden, A. (Brighton, Kemptown)
Flnsberg, Geoffrey
Hunt, John (Bromley)


Boyson, Dr Rhodes (Brent)
Fisher, Sir Nigel
Hurd, Douglas


Bralne, Sir Bernard
Fletcher, Alex (Edinburgh N)
Hutchison, Michael Clark


Brittan, Leon
Fletchef-Cooke, Charles
Irving, Charles (Cheltenham)


Brocklebank-Fowler, C.
Fookes, Miss Janet
Jenkin, Rt Hon P. (Wanst'ttamp;W'dfd)


Brooke, Peter
Forman, Nigel
Johnson Smith, G. (E Grinslead)


Brotherton, Michael
Fowler, Norman (Sutton C'f'd)
Jones, Arthur (Daventry)


Brown, Sir Edward (Bath)
Fox, Marcus
Jopling, Michael


Bryan, Sir Paul
Fry, Peter
Joseph, Rt Hon Sir Keith


Buck, Antony
Galbraith, Hon T. G. D.
Kaberry, Sir Donald


Budgen, Nick
Gardiner, George (Reigate)
Kellelt-Bowman, Mrs Elaine


Bulmer, Esmond
Gardner, Edward (S Fylde)
Kershaw, Anthony


Burden, F. A.
Gilmour, Rt Hon Sir Ian (Chesham)
Klmball, Marcus


Butler, Adam (Bosworth)
Gilmour, Sir John (East Fife)
King, Evelyn (South Dorset)


Carlisle, Mark
Glyn, Or Alan
King, Tom (Brldgwater)


Chalker, Mrs Lynda
Goodhart, Philip
Kitson, Sir Timothy


Channon, Paul
Goodhew, Victor
Knox, David


Churchill, W. S.
Goodilad, Alastair
Lamonl, Norman


Clark, Alan (Plymouth, Sutton)
Gorst, John
Latham, Michael (Melton)


Clark, William (Croydon S)
Gow, Ian (Eastbourne)
Lawson, Nigel


Clarke, Kenneth (Rushcliffe)
Gower, Sir Raymond (Barry)
Le Marchant, Spencer


Clegg, Walter
Grant, Anthony (Harrow C)
Lewis, Kenneth (Rutland)


Cockcrolt, John
Griffiths, Eldon
Lloyd, Ian


Cooke, Robert (Bristol W)
Grist, Ian
Loveridge, John


Cope, John
Grylls, Michael
Luce, Richard

should have. But one matter is certain. The hon. Gentleman knows that the only way that he could make cuts in direct taxation is, as his right hon. Friend the Member for Sidcup said, by cutting social service benefits and transfer payments. The hon. Gentleman knows that and, unless he is prepared to deny it, we must accept that that is what he wants to do.

The Opposition do a great disservice to themselves and to people outside when they pretend that there is a simple way, apart from improving our industrial performance, of cutting income tax by massive amounts. It is not possible. We have made a start in this Budget. We are making a further extension of it now. I recommend my right hon. and hon. Friends to vote for the Government amendment cutting the basic rate by I p and to vote against the Opposition's amendment.

Question put, That the amendment to the proposed amendment be made:—

The House divided: Ayes 238, Noes 268.

McAdden,Sir Stephe
Oppenheim,Mrs Sally
Smith, Timothy John(Ashfield)


McCrindle, Robert
Osbom, John
Speed, Keith


Macfarlane, Neil
Page, John (Harrow West)
Spence, John


MacGregor, John
Page, Rt Hon R. Graham (Crosby)
Spicer, Jim (W Dorset)


MacKay, Andrew James
Page, Richard (Workington)
Spicer, Michael (S Worcester)


Macmillan, Rt Hon M. (Farnham)
Paitie, Geoffrey
Sproat, lain


McNair-Wilson, M. (Newbury)
Price, David (Eastleigh)
Stalnton, Keith


McNair-WIIson, P. (Now Forest)
Prior, Rt Hon James
Stanley, John


Madel, David
Pym, Rt Hon Francis
Stewart, Rt Hon Donald


Mates, Michael
Rees, Peter (Dover amp; Deal)
Stradling Thomas, J.


Mather, Carol
Rees-Davies, W. R.
Taylor, R. (Croydon NW)


Maude, Angus
Reid, George
Tebbit, Norman


Mayhew, Patrick
Renton, Rt Hon Sir D. (Hunts)
Temple-Morris, Peter


Meyer, Sir Anthony
Rhodes James, R.
Thatcher, Rt Hon Margaret


Miller, Hal (Bromsgrove)
Rhys Williams, Sir Brandon
Thomas, Dafydd (Merioneth)


Mills, Peter
Ridley, Hon Nicholas
Thomas, Rt Hon P. (Hendon S)


Miscampbell, Norman
Ridsdale, Julian
Thompson, George


Mitchell, David (Basingstoke)
Rifkind, Malcolm
van Straubenzee, W. R.


Moate, Roger
Roberts, Michael (Cardiff NW)
Vaughan, Dr Gerard


Monro, Hector
Roberts, Wyn (Conway)
Viggers, Peter


Montgomery, Fergus
Rossi, Hugh (Hornsey)
Wakeham, John


Moore, John (Croydon C)
Rosl, Peter (SE Derbyshire)
Walder, David (CliJheroe)


More, Jasper (Ludlow)
Royle, Sir Anthony
Walkef-Smilh, Rt Hon Sir Derek


Morgan, Geraint
Sainsbury, Tim
Wall, Patrick


Morgan-Giles, Rear-Admfrai
Scott, Nicholas
Warren, Kenneth


Morris, Michael (Northampton S)
Scott-Hopkins, James
Weather!!!, Bernard


Morrison, Charles (Devizes)
Shaw, Giles (Pudsey)
Wlgley, Dafydd


Mudd, David
Shelton, William (Streatham)
Wilson, Gordon (Dundee E)


Neave, Alrey
Shepherd, Colin
Wood, Rt Hon Richard


Nelson, Anthony
Shersby, Michael
Young, Sir G. (Eating, Acton)


Neubert, Michael
Silvester, Fred



Newton, Tony
Sims, Roger
TELLERS FOR THE AYES:


Normanton, Tom
Sinclair, Sir George
Mr. Jim Lester and


Nott, John
Skeet, T. H. H.
Mr. Peter Morrison,


Onamp;Iow, Cranley
Smith, Dudley (Warwick)





NOES


Abse, Leo
Cox, Thomas (Tooting)
Gould, Bryan


Anderson, Donald
Crawshaw, Richard
Gourlay, Harry


Archer, Rt Kon Peter
Cronln, John
Graham, Ted


Armstrong, Ernest
Crowther, Stan (Rothertiam)
Grant, George (Morpeth)


Ashton, Joe
Cryer, Bob
Grant, John (Islington C)


Atkins, Ronald (Preston N)
Cunningham, G. (Islington S)
Grocott, Bruce


Atkinson, Norman
Cunningham, Dr J. (Whiteh)
Hamilton, W. W. (Central Fife)


Bagler, Gordon A. T.
Davidson, Arthur
Hardy, Peter


Barnett, Guy (Greenwich)
Davies, Bryan (Enfleld N)
Harper, Joseph


Barnett, Rt Hon Joel (Heywood)
Davles, Denzll (Llanelll)
Harrison, Rt Hon Walter


Bates, Alt
Davies, Rt Hon J. (Knutsford)
Hart, Rt Hon Judith


Bean, R. E.
Davis, Clinton (Hackney C)
Hattersley, Rt Hon Roy


Beith, A. J.
Deaklns, Eric
Hatton, Frank


Benn, Rt Hon Anthony Wedgwood
Dean, Joseph (Leeds West)
Hay man, Mrs. Helene


Bennett, Andrew (Stockport N)
Dell, Rt Hon Edmund
Healey, Rt Hon Denis


Bidwell, Sydney
Dormand, J. D.
Heffer, Eric S.


Bishop, Rt Hon Edward
Douglas-Mann, Bruce
Hooley, Frank


Blenklnsop, Arthur
Duffy, A. E. P.
Horam, John


Boardman, H.
Dunnett, Jack
Howells, Geraint (Cardigan)


Booth, Rt Hon Albert
Dunwoody, Mrs Gwynelh
Hoyle, Doug (Nelson)


Boothroyd, Miss Betty
Eadie, Alex
Hughes, Rt Hon C. (Anglesey)


Bottomley, Rt Hon Arthur
Edge, Geoff
Hughes, Robert (Aberdeen N)


Boyden, James (Blsh Auck)
Edwards, Robert (Wolv SE)
Hughes, Roy (Newport)


Bray, Dr Jeremy
Ellis, John (Brlgg amp; Scun)
Hunter, Adam


Brown, Hugh D. (Provan)
Ellis, Tom (Wrexham)
Irving, Rt Hon S. (Dartford)


Brown, Robert C. (Newcastle W)
English, Michael
Jackson, Colin (Brighousc)


Brown, Ronald (Hackney S)
Ennals, David
Janner, Greville


Buchan, Norman
Evans, Fred (Caerphllly)
Jay, Rt Hon Douglas


Callaghan, Rt Hon J. (Cardiff SE)
Evans, loan (Aberdafe)
Jenkins, Hugh (Putney)


Callaghan, Jim (Mlddleton amp; P)
Evans, John (Newton)
John, Brynmor


Campbell, Ian
Ewing, Harry (Stirling)
Johnson, James (Hull West)


Canavan, Dennis
Faulds, Andrew
Johnson, Walter (Derby S)


Cant, R. B.
Fernyhough, Rt Hon E.
Johnston, Russell (Inverness)


Carmichael, Nell
Fitch, Alan (Wigan)
Jones, Alec (Rhondda)


Carter-Jones, Lewis
Flanrvery, Martin
Jones, Dan (Burnley)


Cartwright, John
Fletcher, Ted (Darlington)
Kaufman, Gerald


Castle, Rt Hon Barbara
Foot, Rt Hon Michael
Kelley, Richard


Clemllson, Ivor
Forrester, John
Kllroy-SHk, Robert


Cocks, Rt Hon Michael
Fowler, Gerald (The Wrekln)
Klnnock, NeH


Cohen, Stanley
Fraser, John (Lambeth, N'w'd)
Lamble, David


Coleman, Donald
Ffeeson, Reginald
Lamborn, Harry


Concannon, J. D.
Freud, Clement
Lamond, James


Conlan, Bernard
Garrett, John (Norwich S)
Latham, Arthur (Paddlngton)


Cook, Robin F. (Edin C)
George, Bruce
Leadbitter, Ted


Corbett, Robin
Gilbert, Dr John
Lee, John


Cowans, Harry
Glnsburg, David
Lestor, Miss Joan (Eton amp; Slough)

McAdden,Sir Stephe
Oppenheim,Mrs Sally
Smith, Timothy John(Ashfield)


McCrindle, Robert
Osbom, John
Speed, Keith


Macfarlane, Neil
Page, John (Harrow West)
Spence, John


MacGregor, John
Page, Rt Hon R. Graham (Crosby)
Spicer, Jim (W Dorset)


MacKay, Andrew James
Page, Richard (Workington)
Spicer, Michael (S Worcester)


Macmillan, Rt Hon M. (Farnham)
Paitie, Geoffrey
Sproat, lain


McNair-Wilson, M. (Newbury)
Price, David (Eastleigh)
Stalnton, Keith


McNair-WIIson, P. (Now Forest)
Prior, Rt Hon James
Stanley, John


Madel, David
Pym, Rt Hon Francis
Stewart, Rt Hon Donald


Mates, Michael
Rees, Peter (Dover amp; Deal)
Stradling Thomas, J.


Mather, Carol
Rees-Davies, W. R.
Taylor, R. (Croydon NW)


Maude, Angus
Reid, George
Tebbit, Norman


Mayhew, Patrick
Renton, Rt Hon Sir D. (Hunts)
Temple-Morris, Peter


Meyer, Sir Anthony
Rhodes James, R.
Thatcher, Rt Hon Margaret


Miller, Hal (Bromsgrove)
Rhys Williams, Sir Brandon
Thomas, Dafydd (Merioneth)


Mills, Peter
Ridley, Hon Nicholas
Thomas, Rt Hon P. (Hendon S)


Miscampbell, Norman
Ridsdale, Julian
Thompson, George


Mitchell, David (Basingstoke)
Rifkind, Malcolm
van Straubenzee, W. R.


Moate, Roger
Roberts, Michael (Cardiff NW)
Vaughan, Dr Gerard


Monro, Hector
Roberts, Wyn (Conway)
Viggers, Peter


Montgomery, Fergus
Rossi, Hugh (Hornsey)
Wakeham, John


Moore, John (Croydon C)
Rosl, Peter (SE Derbyshire)
Walder, David (CliJheroe)


More, Jasper (Ludlow)
Royle, Sir Anthony
Walkef-Smilh, Rt Hon Sir Derek


Morgan, Geraint
Sainsbury, Tim
Wall, Patrick


Morgan-Giles, Rear-Admfrai
Scott, Nicholas
Warren, Kenneth


Morris, Michael (Northampton S)
Scott-Hopkins, James
Weather!!!, Bernard


Morrison, Charles (Devizes)
Shaw, Giles (Pudsey)
Wlgley, Dafydd


Mudd, David
Shelton, William (Streatham)
Wilson, Gordon (Dundee E)


Neave, Alrey
Shepherd, Colin
Wood, Rt Hon Richard


Nelson, Anthony
Shersby, Michael
Young, Sir G. (Eating, Acton)


Neubert, Michael
Silvester, Fred



Newton, Tony
Sims, Roger
TELLERS FOR THE AYES:


Normanton, Tom
Sinclair, Sir George
Mr. Jim Lester and


Nott, John
Skeet, T. H. H.
Mr. Peter Morrison,


Onamp;Iow, Cranley
Smith, Dudley (Warwick)



NOES


Abse, Leo
Cox, Thomas (Tooting)
Gould, Bryan


Anderson, Donald
Crawshaw, Richard
Gourlay, Harry


Archer, Rt Kon Peter
Cronln, John
Graham, Ted


Armstrong, Ernest
Crowther, Stan (Rothertiam)
Grant, George (Morpeth)


Ashton, Joe
Cryer, Bob
Grant, John (Islington C)


Atkins, Ronald (Preston N)
Cunningham, G. (Islington S)
Grocott, Bruce


Atkinson, Norman
Cunningham, Dr J. (Whiteh)
Hamilton, W. W. (Central Fife)


Bagler, Gordon A. T.
Davidson, Arthur
Hardy, Peter


Barnett, Guy (Greenwich)
Davies, Bryan (Enfleld N)
Harper, Joseph


Barnett, Rt Hon Joel (Heywood)
Davles, Denzll (Llanelll)
Harrison, Rt Hon Walter


Bates, Alt
Davies, Rt Hon J. (Knutsford)
Hart, Rt Hon Judith


Bean, R. E.
Davis, Clinton (Hackney C)
Hattersley, Rt Hon Roy


Beith, A. J.
Deaklns, Eric
Hatton, Frank


Benn, Rt Hon Anthony Wedgwood
Dean, Joseph (Leeds West)
Hay man, Mrs. Helene


Bennett, Andrew (Stockport N)
Dell, Rt Hon Edmund
Healey, Rt Hon Denis


Bidwell, Sydney
Dormand, J. D.
Heffer, Eric S.


Bishop, Rt Hon Edward
Douglas-Mann, Bruce
Hooley, Frank


Blenklnsop, Arthur
Duffy, A. E. P.
Horam, John


Boardman, H.
Dunnett, Jack
Howells, Geraint (Cardigan)


Booth, Rt Hon Albert
Dunwoody, Mrs Gwynelh
Hoyle, Doug (Nelson)


Boothroyd, Miss Betty
Eadie, Alex
Hughes, Rt Hon C. (Anglesey)


Bottomley, Rt Hon Arthur
Edge, Geoff
Hughes, Robert (Aberdeen N)


Boyden, James (Blsh Auck)
Edwards, Robert (Wolv SE)
Hughes, Roy (Newport)


Bray, Dr Jeremy
Ellis, John (Brlgg amp; Scun)
Hunter, Adam


Brown, Hugh D. (Provan)
Ellis, Tom (Wrexham)
Irving, Rt Hon S. (Dartford)


Brown, Robert C. (Newcastle W)
English, Michael
Jackson, Colin (Brighousc)


Brown, Ronald (Hackney S)
Ennals, David
Janner, Greville


Buchan, Norman
Evans, Fred (Caerphllly)
Jay, Rt Hon Douglas


Callaghan, Rt Hon J. (Cardiff SE)
Evans, loan (Aberdafe)
Jenkins, Hugh (Putney)


Callaghan, Jim (Mlddleton amp; P)
Evans, John (Newton)
John, Brynmor


Campbell, Ian
Ewing, Harry (Stirling)
Johnson, James (Hull West)


Canavan, Dennis
Faulds, Andrew
Johnson, Walter (Derby S)


Cant, R. B.
Fernyhough, Rt Hon E.
Johnston, Russell (Inverness)


Carmichael, Nell
Fitch, Alan (Wigan)
Jones, Alec (Rhondda)


Carter-Jones, Lewis
Flanrvery, Martin
Jones, Dan (Burnley)


Cartwright, John
Fletcher, Ted (Darlington)
Kaufman, Gerald


Castle, Rt Hon Barbara
Foot, Rt Hon Michael
Kelley, Richard


Clemllson, Ivor
Forrester, John
Kllroy-SHk, Robert


Cocks, Rt Hon Michael
Fowler, Gerald (The Wrekln)
Klnnock, NeH


Cohen, Stanley
Fraser, John (Lambeth, N'w'd)
Lamble, David


Coleman, Donald
Ffeeson, Reginald
Lamborn, Harry


Concannon, J. D.
Freud, Clement
Lamond, James


Conlan, Bernard
Garrett, John (Norwich S)
Latham, Arthur (Paddlngton)


Cook, Robin F. (Edin C)
George, Bruce
Leadbitter, Ted


Corbett, Robin
Gilbert, Dr John
Lee, John


Cowans, Harry
Glnsburg, David
Lestor, Miss Joan (Eton amp; Slough)







Lewis, Ron (Carlisle)
Padley, Walter
Strauss, Rt Hon G. R.


Llpton, Marcus
Palmer, Arthur
Summersklll, Hon Dr Shirley


Lomas, Kenneth
Pardoe, John
Swain, Thomas


Loyden, Eddie
Park, George
Taylor, Mrs Ann (Bolton W)


Luard, Evan
Parker, John
Thomas, Jeffrey (Abertlllecy)


Lyon, Alexander (York)
Parry, Robert
Thomas, Mike (Newcastle E)


Lyons, Edward (Bradford W)
Pavitt, Laurie
Thomas, Ron (Bristol NW)


Mabon, Rt Hon Dr J. Dlckson
Pendry, Tom
Thome, Stan (Preston South)


McDonald, Dr Oonagh
Perry, Ernest
Tlerney, Sydney


McElltone, Frank
Prescott, John
Tinn, James


MacFarquhar, Roderick
Price, C. (Lewisham W)
TomHnson, John


McGuire, Michael (Ince)
Raoice, Giles
Torney, Tom


MacKenzle, Rt Hon Gregor
Rees, Rt Hon Merlyn (Leeds S)
Tuck, Raphael


Maclerman, Robert
Richardson, Miss Jo
Urwln, T. W.


McMillan, Tom (Glasgow C)
Roberts, Albert (Normanton)
Walnwright, Edwin (Dearne V)


McNamara, Kevin
Roberts, Gwllym (Canneck)
Wainwrio.nl, Richard (Colne V)


Madden, Max
Robinson, Geoffrey
Walker, Harold (Doncaster)


Magee, Bryan
Roderick, Caerwyn
Walker, Terry (Klngswood)


Mahon, Simon
Rodgers, George (Chorley)
Ward, Michael


Mallalieu, J. P. W.
Rodgers, Rt Hon William (Stockton)
Watklns, David


Marks, Kenneth
Rooker, J. W.
Watkinson, John


Marshall, Jim (Leicester S)
Rose, Paul 8.
Weetch, Ken


Maynard, Miss Joan
Ron, Stephen (Isle of Wight)
Weitzman, David


Mendeison, John
Ross, Rt Hon W. (Kllmarnock)
Wellbeloved, James


Mikardo, Ian
Rowlands, Ted
White, Frank R. (Bury)


Millan, Rt Hon Bruce
Ryman, John
White, James (Pollock)


Miller, Dr M. S. (E Kilbrlde)
Sedgemore, Brian
Whitehead, Phillip


Mitchell, R. C. (Soton, Itchen)
Salby, Harry
Whitlock, William


Molloy, William
Shaw, Arnold (llford South)
Willey, Rt Hon Frederick


Moonman, Eric
Sheldon, Rt Hon Robert
Williams, Rt Hon Alan (Swansea Wf


Morris, Alfred (Wyihenshawe)
Shore, Rt Hon Peter
Williams, Alan Lee (Hornch'ch)


Morris, Charles R. (Openshaw)
SUkln, Rt Hon John (Deptford)
Williams, Rt Hon Shirley (Hertford)


Morris, Rt Hon J. (Aberavon)
Sllkln, Rt Hon S. C. (Dulwich)
Wilson, Alexander (Hamilton)


Moyle, Roland
Sillars, James
Wilson, Rt Hon Sir Harold (Huyton)


Mulley, Rt Hon Frederick
Stlverman, Julius
Wilson, William (Coventry SE)


Murray, Rt Hon Ronald King
Skinner, Dennis
Wise, Mrs Audrey


Newens, Stanley
Small, William
Woodall, Alec


Noble, Mike
Smith, John (N Lanarkshire)
Woof, Robert


Oakes, Gordon
Spearing, Nigel
Wrlgglesworth, Ian


Ogden, Eric
Sprlggs, Leslie
Young, David (Bolton E)


O'Halloran, Michael
Stallard, A. W.



Orbach, Maurice
Stewart, Rt Hon M. (Fulham)
TELLERS FOR THE NOES:


Orme, Rt Hon Stanley
Stoddart, David
Mr. James Hamilton and


Ovender, John
Stott, Roger
Mr. Peter Snape.


Owen, Rt Hon Dr David
Strang, Gavin

Question accordingly negatived.

Amendment No. 95 agreed to.

Mr. Tony Newton: I beg to move Amendment No. 114, in page 12, line 39, after '£1,500', insert
'in the case of an individual qualifying for a personal relief under section 8(1)(b) of the Taxes Act or £2,300 in the case of an individual qualifying for a personal relief under section 8(1)(a) of the Taxes Act'.

Mr. Deputy Speaker (Mr. Oscar Murton): With this it is proposed to group the following amendments: No. 108, in page 12, line 40, leave out '£500' and insert '£1,000'.
No. 115, in page 13, line 5, at end insert
'and for the reference to £2,300 of a reference to £3,060'.

Mr. Newton: Although these amendments have been grouped together and all concern—[Interruption.]

Mr. Deputy Speaker: Order. Will hon. Members who do not desire to hear the hon. Member for Braintree (Mr.

Newton) move his amendment kindly withdraw quietly?

Mr. Newton: Although these amendments have been grouped together and all concern investment income surcharge, they raise two distinct issues, and I propose to deal with them separately.
We hope to have Amendment No. 108 distinguished separately if it comes to a vote. I shall deal first with that amendment, it being an official Opposition amendment in the names of my right hon and hon. Friends and myself. It concerns what might be called the secondary threshold for the investment income surcharge. Under the Bill, the first £1,500 of investment income is free of investment income surcharge. The next £500 is chargeable at the 10 per cent. surcharge rate, and thereafter the rate is the full 15 per cent. There is a slight variation for the over 65s, but that is the basic situation.
9.45 p.m.
In our view, the basic £1,500 threshold should be raised. At an earlier stage we


tabled an amendment to increase it to £4,000. That battle, for this year at least, has been fought and lost, to the discredit of Liberal Members who have consistently spoken in favour of such a change but who failed to support it when it came to the point this year. No doubt it is something to which we shall return. Meanwhile we feel it right to press the Government again by urging this more limited change. Indeed, it might almost be said to be an excessively limited and modest amendment. We ask for relief of no more than 5 per cent. on £500 of investment income in the secondary tranche, the £500 that is above the £1,500 basic threshold.
All that we are proposing in Amendment No. 108 for a basic rate taxpayer is to reduce from 49 per cent. to 44 per cent. the marginal tax rate on his investment income between £2,000 and £2,500. The arguments were well put by my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) and others when we discussed investment income surcharge in Committee of the whole House a month or two ago.
This evening 1 need only summarise the main points rather than attempt to detain the House by rehearsing them at length. First and foremost, anything that we can do in this area will primarily bring benefit to retired people. I understand from figures that have been given in the House that something approaching half of all taxpayers who are subject to the investment income surcharge are in the retirement group, over the age of 65. Even with this modest amendment we should be doing something to give additional help to a group of the population who have suffered especially from inflation.
The claim is made that those on a basic national insurance pension have been protected in some sense from inflation. It remains to be seen whether that is true this year. Many of us doubt whether the pension increase in November will prove to have protected them against inflation, but events will show. At any rate, some measure of protection has been extended to them. The same is true of those who have a private pension or public service pension that is inflation-proofed. They, too, have had some degree of protection, but the group that we have

not been able to protect, and which has been a great problem to successive Governments, is composed of those who are dependent for their income, or a significant part of it, in retirement on the income from their savings during their working life, which are not inflation-proofed. Those savings have not kept pace with the rise in prices. It is to that group that I am addressing my argument.
This has been an intractable problem for every Government. No Government have found an answer to it. We cannot find an answer this evening, but we can at least give some measure of additional relief to those who would otherwise suffer the grinding effect of taxation eroding real incomes still further. At the same time we would reduce the unfairness between those whose retirement income comes from pension taxed income as earned income and those who happen to have saved for their retirement in a different way— by building up investment— and whose income is taxed at the surcharge rate if the investment is significant.
The next argument goes rather wider. In an earlier debate, my hon. Friend the Member for Horsham and Crawley referred to the effect of the surcharge on small savers and its significant effect on the stock market and the flow of funds to smaller and growing businesses especially. There is real force in that argument irrespective of whether Ministers accept it. Whatever Ministers think of that argument, what surely is common ground between us is that we need to do everything possible to encourage saving.
It is common ground that in using the resources that will flow to us from North Sea oil we need to invest as much as possible and consume as little as possible. That means that, taken as a whole, our community must save a greater proportion of its income than at present to meet the objectives that are agreed in using North Sea oil resources.
What is also common ground is that it is no longer open to a society with tax rates as high as ours to achieve such a saving by the forced saving of additional taxation. We on this side of the House have long believed that, but it is now the view to which Ministers and Labour Members are converted. If we need savings, and if we cannot have the tax rates to force that saving, we must have voluntary saving, but at the moment we


have a situation in which almost everything militates against it.
The rate of inflation encourages people to try to put their money into goods rather than into monetary forms of saving. The personal savings ratio turned down in the early part of this year. At the same time, the operation of the social security system is leading a growing number of people who have retired to wonder whether it made sense to save at all because they find that they are no better off than those who did not save. This is another form of disincentive that we have built into our system. Finally, there is the tax disincentive of the surcharge on incomes for which people have saved during their working lives.
The amendment would do little to help, but it would be an additional sign that the Government meant business and genuinely wanted to encourage people to save and provide the flow of funds for industrial investment which everybody is agreed we need.
I turn now to the Amendments Nos. 114 and 115, which are not, I hasten to emphasise, Official Opposition amendments but are in my name only. They would ease the burden of investment income surcharge but in a much more specific way. The main amendment is No. 114, and Amendment No. 115 follows it through consequentially to the position for people over 65.
Essentially, what I am getting at is the present position in which, whether for married or for single people, the threshold for investment income is the same. We have a tax system which recognises that the need of a married couple is less than that of a single person, or perhaps I should say it recognises that the taxable capacity of a married couple is less than that of a single person. We recognise that by having a higher threshold against total income.
We also have a tax system which acknowledges that there is a need for a separate and distinct kind of threshold against the investment income surcharge — that is, the existing £ 1,500 threshold. What we do not recognise— there is a case for looking at this— is that the surchargeable capacity of a married couple is also less than the surchargeable capacity of a single person, giving rise to a logic which suggests that we ought to consider

a higher investment income surcharge threshold for a married couple.
Whether the present situation would be seen as unjust would vary somewhat according to the exact circumstances of a particular married couple. In the case of a married couple where both had exactly £ 1,500 of investment income genuinely related to savings of their own and not some sharing out that had occurred in relation to the marriage, they would suffer a significant extra burden of investment income surcharge compared with what they would suffer if they were single.
I recognise that that is probably not a frequent case but it certainly can happen. I have a constituent who has prompted me to raise this matter. He says that he is in that situation. He and his wife have genuine investment incomes of £ 1,500 each. He goes on to say that as two single people they would pay no surcharge at all but that because they are married they pay a surcharge of £ 200. He adds that the absurdity of the situation— and this, too, is a valid point is highlighted by the fact that the richer the couple the less the discrimination, because the larger is the proportion of investment income which would in any event be taxed at the 15 per cent. rate. That is clearly an unfair situation.
Against that, in reality in many cases the capital is more likely to be in the hands of the husband. One can therefore argue that one would be creating a route down which, by splitting the capital of the married couple, one significantly reduced their tax liability, and it could be said that that argument was strengthened by the change in CTT enabling tax-free transfers of capital to take place.
I suspect that that is an argument on which the Minister will rely, but the prospect of a married couple splitting their capital to minimise their tax is not one which I find particularly objectionable, for three reasons. First, most of us would like to see capital more widely spread. Secondly, most of us increasingly recognise that the input of a wife into a marriage is more considerable than was previously recognised by both our tax and our legal systems. There is much to be said for treating a wife—if only for the work that she does as housekeeper and mother—as if she was entitled to a personal share of the assets built up by the


partnership. Thirdly— and one must not underrate this when there is a high rate of marriage breakdown— there are considerable merits in increasing the financial security of the wife who still suffers most financially from a breakdown of the marriage. That can be done by encouraging the sharing and splitting of capital within and between the family.
I accept that to follow that logic through would be further than Ministers and others would wish to go. The amendments attempt to do something which is limited and reasonable. The figures are calculated in precise ratio to the existing thresholds on total income. Under the latest proposals, the single man's threshold is £ 845 and the married couple's £ 1,295. I have taken the £ 1,500 investment income surcharge threshold and come up with a figure of £ 2,300 investment income threshold for a married couple. It is a modest amendment. It is one that it is worth examining as a possibility.
I have made the proposals in Amendments Nos. 114 and 115 tentatively. They raised broad issues about the way in which we tax married couples. We have not heard the last of that. There is still much to be argued from all sides, and we shall not solve the problem by these amendments this evening. However, it is an aspect that the Government should consider.
Amendment No. 108 is not tentative. We believe that much more should be done to encourage savings and to provide additional help, especially to retired people living on incomes from their savings. The proposals in the amendment would at least do a little more to help in that direction. I hope that my right hon. and hon. Friends are with me in wishing to vote tonight if Ministers are not prepared to accept this moderate and reasonable proposal.

Mr. Ridsdale: Many people in my constituency are affected by the unfair tax imposition on retired people and those who are near retirement and finding it difficult to get employment. At a time of 17½ per cent. inflation this surcharge on their savings is inhuman. I cannot understand why the Government have not gone further to help.
The Liberal Party says that it wishes to help small savers. It appears that Liberal Members will either abstain or vote against the amendment. I can understand why the Liberals suffered such humiliation at Saffron Walden.

Mr. Pardoe: We did not. Has not the hon. Gentleman noticed?

Mr. Ridsdale: I read the letter in The Times from theVice-President of the Liberal Party, who called it a humiliation.
Be that as it may, this system of double taxation, almost triple taxation, for people who have spent all their lives working and people on very limited means, at a time of inflation, is very inhuman. I ask the Government to think seriously about it. If we are to encourage investment and saving, this is not the way to go about it. I am sure that the common sense of the people of this country will hold this, as well as many other things that the Government have done against them, as a reason for returning a Conservative Government at the next General Election.
I congratulate my hon. Friend the Member for Braintree (Mr. Newton) on having proposed the amendment.

10.0 p.m.

Mr. Kenneth Warren: I rise also to support my hon. Friend the Member for Braintree (Mr. Newton) in the amendment, which was very ably moved. I want briefly to contribute some thoughts on the whole question of the attitude of this House and the Government to investment income. When one takes a decision on a Finance Bill, one thinks that one is taking it only for a year, but in fact one is affecting people's decisions, probably for their lifetime ahead, on the question whether or not they should save. It is not just those who are spending their savings today who experience this taxation but younger people who will have to consider how they will combat the possibilities of inflation in their retirement.
I am sure that hon. Members on both sides of the House would subscribe to the idea that investment income ought to be available for people to enjoy in their retirement. One could advance a nice economic argument that it is part of


the whole restraint, to stop people spending what they earn, and that it is a good idea to have that investment cycled through the economy to create new business enterprises and to sustain current enterprises, but I am extremely concerned that even the terms of these amendments show how shallow budgetary considerations frequently are. They are questions for today rather than problems that people face in a lifetime.
If one looks at the experience of my hon. Friends the Members for Harwich (Mr. Ridsdale), Eastbourne (Mr. Gow) and Folkestone and Hythe (Mr. Costain), which they share with me as being representatives of constituencies on the coast in which a large proportion of the population are retired, one can appreciate that these clauses and amendments are of vital importance.
After the years of their saving, they who served us in the front line and have now retired to these places find that not only are they in the front line in the inflation battle but they are also on the poverty line, with the increased erosion of their savings, increased fares, and so on. Not only are they on the poverty line; they have become isolated on islands on the perimeter of the British economy, where they are being shut away, neglected and left, until people speak out on their behalf.
In the House we hear of the need to moderate pay claims, and that people such as coalface workers may claim £ 135 a week. Perhaps they deserve it, but they can deserve it only if they produce against that pay. If they do not do that, it is the pensioners who will pay for such a pay increase. That means that the consideration of their savings must be much more strongly in our minds.
Lastly, I am delighted to hear investment income being talked about. It is usually called unearned income, but nothing could be further from the truth. We have been getting into Treasury folklore. I am sorry that the Financial Secretary is no longer present. I hope that he will not mind my criticising him in his absence for one phrase that he used in the debate on a previous amendment. He said that 1p off income tax costs £ 500 million. It does not cost £ 500 million. It means that a penny in someone's pocket is not in the Treasury's pouch. That is the way in which we

ought to approach these problems—considering not how much it will cost the Government but how much it will save people.
This is a serious amendment about the quality of life of people who can no longer save, and whose savings are being eroded in front of their eyes.

Mr. Giles Shaw: I support what my hon. Friends have said about the amendment. I want to stress the problems of the age-retired in this regard. Many of us know full well that those who are now aged 70, 75 and more were not enabled, during their working life, to save for some kind of contributory pension or to take part in an orthodox pension scheme. To them the importance of what we are discussing is related not to investment income, but to survival income. From that point of view there should be a review of these rates.
I know that there are age allowances, and so on, for retired persons. There should be a review of the whole system, whereby consideration should be given to the question of surcharge taxation. Quite apart from the equity of this case, a review is long overdue, bearing in mind the appalling effect of inflation on older persons.

Sir G. Howe: I should like to underline very strongly the importance of the point made in a comprehensive speech by my hon. Friend the Member for Braintree (Mr. Newton), supported by my hon. Friends the Members for Harwich (Mr. Ridsdale), Hastings (Mr. Warren) and Pudsey (Mr. Shaw), and supported silently but vigorously by my hon. Friends the Members for Eastbourne (Mr. Gow) and Folkestone and Hythe (Mr. Costain), who have frequently spoken on this subject in the past.
The central point of the case is that investment income surcharge is a tax which falls to a great extent on the elderly and the retired. It falls at a level of income which is much too low and at a rate which is much too high. It is unjust to them, it is damaging to the cause of savings and investment, and it should be abated and relieved as quickly and as far as possible.
My hon. Friend the Member for Braintree in his Amendments Nos. 114 and 115 raised the curtain on a more sophisticated and interesting aspect of this


argument —the extent to which it is right or wrong for the investment income of husband and wife, married and living together, to be added together so that they enjoy the benefit of only one allowance. I hope that he will forgive me if I do not follow him down that road.
His argument raises a question which will be increasingly important in many aspects of our tax law. The income tax system was designed in an age when it bore only on high incomes at low rates, when married women spent a great part of their lives bearing children or looking after young children, when only a few of them went to work, and if they did they did not come within the bands which were subject to income tax.
We are now living in the world of the working wife, the world of couples both of whom are at work, both of whom have savings and both of whom are accumulating investment income. We are only beginning to analyse the changes which may be necessary to adapt our structure of income tax to the changing world.
The central point, as my hon. Friend the Member for Braintree said, under Amendment No. 108 is at the very least to increase the amount on which investment income surcharge is payable at a rate of 10 per cent. rather than 15 per cent., from £500 to £1,000, so that that surcharge falls on the band of income between £1,500 and £2,500 instead of on the narrower band.
That is an excessively modest proposal. It effects those with modest investment incomes— between £ 40 and £ 50 a week. The tax is unjust in bearing upon people who for the most part are elderly and retired. Forty-two per cent. of the tax is extracted from pensioners, generally from those who have no other significant income. These people are living on the savings which they have accumulated during a lifetime and which they thought were adequate for the non-inflationary future in which they were going to retire. Those savings are hopelessly inadequate for the inflationary world in which they find themselves. Such pensioners are not by any means frequently blessed with inflation-proofed pensions. To tax them at a differentially high rate on incomes as modest as these is to do great injustice.

It is not easy to defend this action in any kind of society.
It is also more serious to sustain a tax at this level when one thinks of its impact upon savings and the whole attitude of society towards savings. When one reflects that the total yield of investment income surcharge is about £ 275 million and that the cost of the additional milk subsidy granted by the Chancellor last week is £ 110 million, it is surely worth asking whether that money would not be far more fruitfully spent in relieving the burden of taxation on savings and savings income than in spreading a subsidy thinly on one commodity.
How crazy are we becoming when we regard it as creating a proper atmosphere for whatever the Government have in mind to introduce a subsidy on milk while cancelling subsidies on bread and cheese? Conjuring tricks of that kind have no impact. The same amount of money would go further towards relieving hardship if spent under our amendment. That would be a signal of a different approach to the kind of society we want.
We have no use for a subsidy society. We have a great deal of use for a saving society. That is the direction in which the Government should disburse money if they can do it at all. I therefore invite my hon. Friends to support Amendment No. 108, which represents a modest step towards sanity and justice. If we went the whole way and restored the position established by the last Conservative Government, we should have to raise the threshold for investment income surcharge to £ 4,000 before it even started to be paid — and that would be merely tinkering with the most urgent problem, which should never have arisen and which the present Government have tolerated for too long, to their great discredit and shame.

The Minister of State, Treasury (Mr. Denzil Davies): The hon. Member for Braintree (Mr. Newton), although he moved Amendment No. 114, spoke in the main to Amendment No. 108, which is the official Opposition amendment. Perhaps I may deal first with that amendment.
The hon. Member based his case to some extent on the need to encourage savings. We would all agree on the importance of that. In fact, the ratio of


savings over the last few years has been very high, for various reasons which no one really understands, but despite the high rate of tax, including the investment income surcharge, for which hon. Members constantly criticise us, and a high rate of inflation. For some odd reason, people have not converted their money into goods because of inflation; in fact, they have saved it. That might be perverse, but it has happened. Therefore, to link the amendment with the need to create savings and to say that because the surcharge is too high it has inhibited savings, is not true of the last few years.
To listen to Conservative Members one would have thought that it was this Government who introduced that surcharge. I accept that they disagree about the levels, but they should remember that it was introduced in 1971 by Lord Barber. Previously, it was called the unearned income surcharge, but it was introduced by a Conservative Government.

Sir G. Howe: The Minister cannot get away with that literal presentation of the matter. The last time that we discussed this matter in Committee we established clearly that the distinction between earned and unearned income was introduced by a Liberal Chancellor, McKenna, when income tax was at a standard rate of 10 per cent. When that system was replaced by Lord Barber in 1972, the name of the game was changed, but he produced a substantial reduction in the burden of taxation on unearned income, at a level which could be reproduced today only by raising the starting point to £4,000.

10.15 p.m.

Mr. Davies: The right hon. and learned Gentleman should not get excited. [HON. MEMBERS: "Withdraw."] They are all getting excited now. I was merely reciting a fact; there is nothing to withdraw. The investment income surcharge was introduced by Lord Barber. I remember pointing out from the Opposition Benches that it did not apply to discretionary trusts, and they changed the law quickly to make it apply to them. As the right hon. and learned Gentleman admitted, what Lord Barber did was to change the name of the process for taxing unearned income. That goes back to McKenna, Lloyd George and the Liberal Party at the beginning of this

century, but the Conservative Party decided, when changing our tax system, to make a tax on unearned income, with some exemptions, and to call it the investment income surcharge.
Inflation has affected savings and especially the income of those who do not have inflation-proofed pensions, or who have to live on what is correctly described as investment income. However, we have given these people certain relief in the Budget—though Opposition Members may dispute the level of the relief. We have increased the threshold to £1,500 for those under 65 and to £2,000 for those over 65. Opposition Members may say that that is not enough, but at least we have done that much.
The hon. Member for Croydon, South (Mr. Clark) keeps muttering. If he has something to say, let him get up and say it.

Mr. William Clark: The Minister of State claims to have increased the starting point for the tax, but when the Government came to office the level was higher than he is proposing.

Mr. Davies: I accept that. All that I am saying is that we have increased the levels in the Budget to £1,500 and £2,000.
In addition, the increased personal allowances benefit those who have to live on investment income in the same way as everyone else. Hon. Members on the Opposition Benches should not look only at the investment income surcharge. Those who are now shaking their heads do not understand how the tax system works. An increase in allowances naturally benefits people who receive income, whether it is investment income or so-called earned income.
The reduction in the basic rate of income tax also benefits those with investment income. They pay the same basic rate as everyone else. All these measures have benefited those living on investment income. The cost, or, in deference to the hon. Member for Hastings (Mr. Warren), the reduction in the receipts of the central Government, involved in the amendment would be £ 11 million to £ 12 million. 1 expect that, in their present mood, that does not mean much to the Opposition and that they could easily vote it away, but the £ 11 million has to be balanced


against other calls upon our expenditure and, bearing in mind the increase in the threshold and other tax changes, we felt that this was as far as we could go this year. That does not mean that we think that those on investment income do not suffer from inflation, and the level of the surcharge is kept under review.
In Amendment No. 114, the hon. Member for Braintree seeks to equate an exemption with an allowance. Because there is a single person's and a married person's allowance, he wants allowances for both groups in respect of investment income. This is not the right way to deal with the matter. The married person's allowance benefits couples receiving investment income and recognises that married couples have greater expenses than single people. However, extending allowances in the way proposed in the amendment would not be the best way to proceed.
There is also the question of disaggregation of investment income. It may be that we shall go down this road because of changes in our society. Who knows how society will develop? If we go along this road, however, we also have to consider the effect on capital transfer tax and capital gains tax. If there is to be disaggregation of investment income,

Division No. 206]
AYES
[10.24 p.m.


Adley, Robert
Clark, Alan (Plymouth, Sutton)
Gllmour, Rt Hon Sir Ian (Chesham)


Aitken, Jonathan
Clark, William (Croydon S)
Gllmour, Sir John (East Fife)


Alison, Michael
Clarke, Kenneth (Rushclitle)
Glyn, Dr Alan


Arnold, Tom
Clegg, Walter
Goodhart, Philip


Atkins, Rt Hon H. (Spelthorne)
Cockcrott, John
Goodhew, Victor


Awdry, Daniel
Cooke, Robert (Bristol W)
Goodlad, Alastair


Banks, Robert
Cope,John
Gorst, John


Bennett, Sir Frederic (Torbey)
Costaln, A. P.
Gow, Ian (Eastbourne)


Bennett, Dr Reginald (Fareham)
Critchley, Julian
Gower, Sir Raymond (Barry)


Berry, Hon Anthony
Crowder, F. P.
Grant, Anthony (Harrow C)


Bitten, John
Dodsworth, Geoffrey
Grist, Ian


Biggs-Davison, John
Drayson, Burnaby
Grylls, Michael


Blaker, Peter
du Cann, Rt Hon Edward
Hamilton, Michael (Salisbury)


Body, Richard
Durant, Tony
Hampson, Dr Keith


Boscawen, Hon Robert
Dykes, Hugh
Hannam, John


Bottomley, Peter
Eden, Rt Hon Sir John
Harrison, Col Sir Norwood (Eye)


Bowden, A. (Brighton, Kernptown)
Edwards, Nicholas (Pembroke)
Haselhurst, Alan


Boy son, Dr Rhodes (Brent)
Elliott, Sir William
Hawkins, Paul


Bralne, Sir Bernard
Emery, Peter
Hayhoe, Barney


Brittan, Leon
Eyre, Reginald
Heseltine, Michael


Brocklebank-Fowler, C.
Fairbairn, Nicholas
Hicks, Robert


Brooke, Peter
Farr, John
Higgins, Terence L.


Brotherton, Michael
Fell, Anthony
Hodgson, Robin


Brown, Sir Edward (Bath)
Flnsberg, Geoffrey
Holland, Philip


Bryan, Sir Paul
Fisher, Sir Nigel
Hordern, Peter


Buck, Antony
Fletcher, Alex (Edinburgh N)
Howe, Rt Hon Sir Geoffrey


Budgen, Nick
Fletcher-Cooke, Charles
Howell, David (Gufldford)


Bulmer, Esmond
Forman, Nigel
Howe-H Ralph (North Norfolk)


Burden, F. A.
Fowler, Norman (Sutton C'f'd)
Hunt, David (WIrral)


Butler, Adam (Bosworth)
Fox, Marcus
Hunt, John (Bromley)


Carlisle, Mark
Fry, Peter
Hurd, Douglas


Chalker, Mrs Lynda
Galbralth, Hon T. G. D.
Hutchison, Michael Clark


Channon, Paul
Gardiner, George (Relgate)
James, David


Churchill, W. S.
Gardner, Edward (S Fylde)
Jenkin, Rt Hon P. (Wanst'damp;W'df'd)

there is no reason why capital transfer tax or capital gains tax should be exempt. If the amendment were approved, it would have considerable repercussions and consequences on our tax system. Amendment No. 114 was put forward tentatively. I do not think that we are ready to move along that road, if, indeed, we ever are.

Nor can I recommend Amendment No. 108 to the House. I know that the Opposition feel strongly about it, but this year we have gone as far as we can in trying to help people in receipt of investment income and we cannot go further at the cost, in this case, of £11 million.

Question put, That the amendment be made:—

The House proceeded to a Division; but no Member being willing to act as Teller for the Ayes, Mr. DEPUTY SPEAKER declared that the Noes had it.

Question accordingly negatived.

Amendment proposed: No. 108, in page 12, line 40, leave out £500 'and insert £1,000'.—[Mr. David Howell.]

Question put, That the amendment be made:—

The House divided: Ayes 213, Noes 250.

Johnson Smith, G. (E Grinstead)
Montgomery, Fergus
Shersby, Michael


Jones, Arthur (Daventry)
Moore, John (Croydon C)
Silvester, Fred


Jopllng, Michael
More, Jasper (Ludlow)
Sims, Roger


Joseph, Rt Hon Sir Keith
Morgan, Geraint
Sinclair, Sir George


Kaberry, Sir Donald
Morgan-Giles, Rear-Admiral
Smllh, Dudley (Warwick)


Kellett-Bowman, Mrs Elaine
Morris, Michael (Northampton S)
Smith, Timothy John (Ashfleld)


Kershaw, Anthony
Morrison, Charles (Devizes)
Speed, Keith


Klmball, Marcus
Mudd, David
Spence, John


King, Evelyn (South Dorset)
Neave, Airey
Splcer, Jim (W Dorset)


Kitson, Sir Timothy
Nelson, Anthony
Spicer, Michael (S Worcester)


Knox, David
Neubert, Michael
Sproat, lain


Lamont, Norman
Newton, Tony
Stainton, Keith


Latham, Michael (Melton)
Normanton, Tom
Stanley, John


Lawson, Nigel
Nott,John
Stewart, Ian (Hltchln)


Le Marchant, Spencer
Onslow, Cranley
Stokes, John


Lester, Jim (Beeslon)
Oppenhelm, Mrs Sally
Stradling Thomas, J.


Lewis, Kenneth (Rutland)
Page, John (Harrow West)
Taylor, R. (Croydon NW)


Lloyd, Ian
Page, Rt Hon R. Graham (Crosby)
Tebblt, Norman


Loveridge, John
Page, Richard (Worklngton)
Temple-Morris, Peter


Luce, Richard
Pattie, Geoffrey
Thatcher, Rt Hon Margaret


MacCormick, lain
Price, David (Eastleigh)
Thomas, Rt Hon P. (Hendon S)


McCrlndle, Robert
Prior, Rt Hon James
van Straubenzee, W. R.


Macfarlane, Neil
Pym, Rt Hon Francis
Vaughan, Dr Gerard


MacGregor, John
Ralhbone, Tim
Viggers, Peter


MacKay, Andrew James
Rawlinson, Rt Hon Sir Peter
Wakeham, John


Macmlllan, Rt Hon M. (Famham)
Rees, Peler (Dover amp; Deal)
Walder, David (CIHtieroe)


McNarr-Wllson, M. (Newbury)
Rhodes James, R.
Walker-Smith, Rt Hon Sir Derek


McNair-Wilson, P. (New Forest)
Rhys Williams, Sir Brandon
Wall, Patrick


Madel, David
Ridley, Hon Nicholas
Warren, Kenneth


Marshall, Michael (Arundel)
Ridsdale, Julian
Weatherlll, Bernard


Marten, Neil
R if kind, Malcolm
Wells, John


Mates, Michael
Roberts, Michael (Cardiff NW)
Wood, Rt Hon Richard


Malher, Carol
Roberts, Wyn (Conway)
Young, Sir G. (Ealing, Acton)


Mayhew, Patrick
Salnsbury, Tim



Meyer, Sir Anthony
Scott, Nicholas
TELLERS FOR THE AYES:


Miller, Hal (Bromsgrove)
Scott-Hopkins, James
Lord James Douglas-Hamilton and


Miscampbeil, Norman
Shaw, Giles (Pudsey)
Mr. Peter Morrison.


Mitchell, David (Basingstoke)
Shelton, William (Streatham)



Moate, Roger
Shepherd, Colin





NOES


Abse, Leo
Cryer, Bob
Grant, John (Islington C)


Anderson, Donald
Cunningham, G. (Islington S)
Grimond, Rt Hon J.


Archer, Rt Hon Peter
Cunningham, Dr J. (Whiten)
Grocott, Bruce


Armstrong, Ernest
Davidson, Arthur
Hardy, Peter


Ashton, Joe
Davies, Bryan (Enfleld N)
Harper, Joseph


Atkins, Ronald (Preston N)
Davles, Denzil (Llanelll)
Harrison, Rt Hon Walter


Atkinson, Norman
Davies, llor (Gower)
Hart, Rt Hon Judith


Bagier, Gordon A. T.
Davis, Clinton (Hackney C)
Hattersley, Rt Hon Roy


Barnett, Guy (Greenwich)
Deakins, Eric
Hatton, Frank


Barnett, Rt Hon Joel (Heywood)
Dean, Joseph (Leeds West)
Hayman, Mrs. Helene


Bean, R. E.
Dell, Rt Hon Edmund
Healey, Rt Hon Denis


Beith, A. J.
Dormand, J. D.
Heifer, Eric S.


Benn, Rt Hon Anthony Wedgwood
Douglas-Mann, Bruce
Hooley, Frank


Bennett, Andrew (Stockport N)
Duffy, A. E. P.
Hooson, Emlyn


Bidwell, Sydney
Dunwoody, Mrs Gwyneth
Moram, John


Bishop, Rt Hon Edward
Eadie, Alex
Howells, Geraint (Cardigan)


Blenklnsop, Arthur
Edge, Geoff
Hoyle, Doug (Nelson)


Boardman, H.
Edwards, Robert (Wolv SE)
Hughes, Rt Hon C. (Anglesey)


Booth, Rt Hon Albert
Ellis, John (Brigg amp; Scun)
Hughes, Robert (Aberdeen N)


Boothroyd, Miss Betty
Ellis, Tom (Wrexham)
Hughes, Roy (Newport)


Bottomley, Rt Hon Arthur
English, Michael
Hunter, Adam


Brown, Hugh D. (Provan)
Ennals, David
Irving, Rt Hon S. (Dartford)


Brown, Robert C. (Newcastle W)
Evans, Fred (Caerphllly)
Jackson, Colin (Brighouse)


Brown, Ronald (Hackney S)
Evans, loan (Aberdare)
Jackson, Miss Margaret (Lincoln)


Callaghan, Rt Hon J. (Cardiff SE)
Evans, John (Newton)
Janner, Greville


Callaghan, Jim (Mlddleton amp; P)
Faulds, Andrew
Jay, Rt Hon Douglas


Campbell, Ian
Fernyhough, Rt Hon E.
Jenkins, Hugh (Putney)


Canavan, Dennis
Fitch, Alan (Wlgan)
John, Brynmor


Cant, R. B.
Flannery, Martin
Johnson, James (Hull West)


Carter-Jones, Lewis
Fletcher, Ted (Darlington)
Johnson, Walter (Derby S)


Cartwrlght, John
Foot, Rt Hon Michael
Johnston, Russell (Inverness)


Clemitson, Ivor
Forrester, John
Jones, Alec (Rhondda)


Cocks, Rt Hon Michael
Fowler, Gerald (The Wrekin)
Jones, Dan (Burnley)


Cohen, Stanley
Fraser, John (Lambeth, N'w'd)
Kaufman, Gerald


Coleman, Donald
Freeson, Reginald
Kelley, Richard


Concannon, J. D.
Freud, Clement
Kllroy-Sllk, Robert


Conlan, Bernard
Garret!, John (Norwich S)
Klnnock, Nell


Cook, Robin F. (Edln C)
George, Bruce
Lamborn, Harry


Corbett, Robin
Gilbert, Dr John
Lamond, James


Cowans, Harry
Ginsburg, David
Latham, Arlhur (Paddington)


Cox, Thomas (Tooting)
Gould, Bryan
Leadbltter, Ted


Crawshaw, Richard
Gourlay, Harry
Lestor, Miss Joan (Eton amp; Slough)


Cronln, John
Graham, Ted
Lewis, Ron (Carlisle)


Crowther, Stan (Rotherham)
Grant, George (Morpeth)
Lipton, Marcus







Lamas, Kenneth
Pardoe, John
Strauss, Rt Hon G. R.


Loyden, Eddie
Park, George
Summefskill, Hon Dr Shirley


Luard, Evan
Parker, John
Taylor, Mrs Ann (Bolton W)


Lyon, Alexander (York)
Paviti, Laurie
Thomas, Jeffrey (Abertillery)


Lyons, Edward (Bradford W)
Perry, Ernest
Thomas, Mike (Newcastle E)


McDonald, Or Oonagh
Prescott, John
Thomas, Ron (Bristol NW)


McElhone, Frank
Price, C. (Lewisham W)
Ttvorne, Stan (Preston South)


MacFarquhar, Roderick
Radice, Giles
Tiemey, Sydney


McQuire, Michael (Ince)
Rees, Rt Hon Merlyn (Leeds S)
Tinn, James


MacKenzie, R! Hon Gregor
Richardson, Miss Jo
Tomlinson, John


Maclennan, Robert
Roberts, Albert (Normanton)
Torney, Tom


McMillan, Tom (Glasgow C)
Roberts, Gwilym (Cannock)
Urwin, T. W.


McNamara, Kevin
Robinson, Geoffrey
Varley, Rt Hon Eric G.


Madden. Max
Roderick, Caerwyn
Wainwright, Edwin (Dearne V)


Magee, Bryan
Rodgers, George (Chorley)
Wainwright, Richard (Colne V)


Mahon, Simon
Rodgers, Rt Hon William (Stockton)
Ward, Michael


Mallalieu, J. p. W.
Rooker, J. W.
Watkins, David


Marks, Kenneth
Rose, Paul B.
Watkinson, John


Marshall, Jim (Leicester S)
Ross, Stephen (Isle of Wight)
Weetch, Ken


Maynard, Miss Joan
Rowlands, Ted
WeUzman, David


Mendelson, John
Ryman, John
Wellbeloved, James


Mikardo, Ian
Sedgemore, Brian
White, Frank R. (Bury)


Miller, Dr M. S. (E Kilbride)
Selby, Harry
White, James (Pollock)


Mitchell, R. C. (Solon, lichen)
Shaw, Arnold (llford South)
Whitehead, Phillip


Molloy, William
Sheldon, Rt Hon Robert
Whitlock, William


Moonman, Eric
Shore, Rt Hon Peter
Wigley, Dafydd


Morris, Alfred (Wythenshawe)
Silkin, Rt Hon John (Deptford)
Williams, Rt Hon Alan (Swansea W)


Morris, Charles R. (Openshaw)
Silkin, Rt Hon S. C. (Dulwich)
Williams, Alan Lee (Hornch'ch)


Moyle, Roland
Slllars, James
Williams, Rt Hon Shirley (Hertford)


Mulley, Rt Hon Frederick
Stlverman, Julius
Wilson, Rt Hon Sir Harold (Huyton)


Murray, Rt Hon Ronald King
Skinner, Dennis
Wilson, William (Coventry SE)


Newens, Stanley
Smith, John (N Lanarkshire)
Wise, Mrs Audrey


Noble, Mike
Snape, Peter
Woodall, Alec


Oakes, Gordon
Spearing, Nigel
Woof, Robert


Ogden, Eric
Sprlggs, Leslie
Wrigglesworth, Ian


O'Halloran, Michael Orbach, Maurice
Stallard, A. W.
Young, David (Bolton E)


Orbach, Maurice
Steel, Rt Hon David



Orme, Rt Hon Stanley
Stewart, Rt Hon M. (Fulham)
TELLERS FOR THE NOES:


Ovenden, John
Stoddart, David
Mr. James Hamilton and


Owen, Rt Hon Dr David
Stotl, Roger
Mr. Alf Bates.


Palmer, Arthur
Strang, Gavin

Question accordingly negatived.

New Clause 83

CAPITAL GAINS: UNIT TRUSTS, ETC.

'(1) In relation to gains accruing on disposals after 5th April 1977 section 112 of the Finance Act 1972 (reduction of tax liability on certain disposals of shares in unit trusts, investment trusts and funds in court) shall have effect as if for the references in paragraphs (b) and (c) of subsection (3) to 17½ per cent. there were substituted references to 17 per cent.

(2) Section 113 of that Act (reduced rate of capital gains tax for certain unit trusts and funds in court) shall have effect for the year 1977– 78 and subsequent years of assessment as if the rate specified in it were; per cent. instead of 17½ per cent.'.—[Mr. Joel Barnett.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 22

SUB-CONTRACTORS (EXEMPTION)

'Section 69(2) of the Finance (No. 2) Act 1975 shall have effect and be deemed always to have had effect with the addition of the following words at the end of paragraph (b)that is to say—

"Provided that for the purposes of this Chapter a person whose trade is the supply and fixing of floor coverings, furniture, fittings and chattels of any description whatsoever shall not be a sub-contractor."'.—[Mr. Ridley.]

Brought up, and read the First tune.

Mr. Ridley: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Myer Galpern): With this new clause, we may consider the following:

New Clause 23—Sub-contractors.

New Clause 24—Sub-contractors in the building industry.

New Clause 25—Sub-contractor, exemption.

Mr. Ridley: I propose to take immediately, with New Clause 22, New Clause 25. Then I shall discuss New Clauses 23 and 24 as a second subject.
It is only right that we should return to the vexed subject of sub-contractors in the building industry, if only for the reason that the Government have still not done anything about them. They at least seem to acknowledge that this matter

is of paramount importance by so ordering the procedure of the House on Report to take new clauses on sub-contractors in the construction industry as a special category, for some reason, between Clauses 17 and 18.
We congratulate the Financial Secretary on his having at least recognised the importance of this subject, but he has still not understood the damage that his legislation on sub-contractors is doing. Therefore I make no apology for raising the matter again.
There are two matters which need to be raised about the scope of the sub-contractors legislation. When we were first discussing this legislation in Committee, Section 69 (3) (a) of the Finance (No. 2) Act 1975 said that it was to apply to
any person carrying on a business which includes construction operations".
That was the definition of the extent of this iniquitous legislation.
My hon. Friend the Member for St. Ives (Mr. Nott) was sufficiently percipient at the time to realise that that was a rather wide definition.
Any person carrying on a business which includes construction operations
could be almost anyone. The Financial Secretary himself, presumably, has added a bow window to his house or possibly put a little plastic gnome in his garden. Both would technically be a construction operation.
Therefore, in Committee on 3rd July 1975 my hon. Friend the Member for St. Ives asked what this definition meant. The Financial Secretary said:
Subsection (3) treats the definition of the contractor for the purposes of the subsection as anybody whose business includes construction work. That, of course, includes various public bodies. The 'business' part must include construction operations, but that does not imply— where the business is not construction— cases where an individual or an organisation carries out some small alterations himself or itself.
The right hon. Gentleman went on to say:
A person has got to be in the business of construction operation."—[Official Report, Standing Committee H, 23rd July 1975; amp;c. 876–7.]
My hon. Friends in that Committee perhaps unwisely accepted the Financial Secretary's word that it was limited to construction operations—that is, companies carrying out construction. The first group that the Revenue pulled into


the net was those who supply floor coverings, furniture, fittings and chattels of any description in the building industry, yet they are not builders in the sense that they hew, plaster and build. They are the people who come with manufactured products that they have made and who install them. By no sense of the imagination could those people be called people who are in the business of "construction operations", yet I have met a number of cases in which firms which supply and install this sort of goods have been asked for 714 certificates before being paid for the contract which they entered into with the main contractor. New Clause 22 therefore deals with their case.
We want a clear, definitive statement that the Financial Secretary is sticking to the words that he used in Committee on 3rd July 1975. We want his agreement that these people are not within the scope of the legislation. Were he to deny this, he would be going back on his words. I know that Opposition Members are supposed to be naive and gullible, and when a Minister in this Government tells us something we have the weakness of tending to accept his word. That was the mistake we made in 1975. We believed the Financial Secretary.
Now, the Revenue is busy bringing these people into the net, and we would like to have it out with the right hon. Gentleman. In 1975 he said what I have quoted, and then he authorised the Revenue to include all these people who make carpets, door handles and other things, thus allowing them to be persecuted over 714 certificates.
I wish to deal next with New Clause 25. Here we are dealing with a much more major issue, although it is not more important in the sense that it involves ordinary working people, for whom the Opposition show real concern. I see that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) is laughing. He should not laugh at ordinary working people. Ordinary working people are part of the mythology of the Labour Party, and it ill behoves the hon. Gentleman to start poking fun at the working people for whom the Opposition are always concerned.
New Clause 25 is concerned with the gross dereliction from the undertaking

that the Financial Secretary gave in that famous Committee stage in 1975. By no sense could those who work in the North Sea in the oil and gas extraction industry be classified as being in the business of construction operations. There is no way that the words "construction operations" could be applied to people who are extracting oil and bringing it ashore from North Sea fields. Yet I am told authoritatively that oil companies have been classified as contractors for the purposes of Section 69.
Incidentally, I believe that there is a misprint in New Clause 25. The last word should be "contractor", not "subcontractor". But that does not destroy the point that these contractors have been asked to deduct 35 per cent. — now 34 per cent. due to the magnificent munificence of the Government—from payment to those whom they employ for a whole manner of services rendered from welding to diving and other tasks which I do not understand technically but are performed in the extraction of gas and oil.
10.45 p.m.
I am sure that if that famous hero who saved the coasts of this country from pollution by stopping up the Norwegian well which became a gusher— Mr. Red Adair— had been on the other side of the median line, he would have been classified as a labour-only sub-contractor and would have had 34 per cent. deducted from his fee. I am not sure that he would have come had he known that that was the name of the game. The miracle was that the gusher was on the other side of the median line in Norwegian, not British, tax jurisdiction. This new clause is designed to let Red Adair have the money that he has contracted to get and not let the Treasury get its hands on it before he has established his right to it as a non-British taxpayer.
Is it true that sub-contractors working for North Sea oil companies have been classified by the Revenue as people to whom the 714 legislation applies? Have they been forced, rightly or wrongly, to conform with the 35 per cent. deduction in the past, now 34 per cent., and, if so, why? I suggest that in no sense could they be described as being engaged in construction operations. The Financial Secretary knows that. This is a point of personal honour for him, because he gave


the assurance in Committee to my hon. Friend the Member for St. Ives that he was thinking of people whose business comprised construction operations, not people who, by a side wind or as some extra part of their activities, engaged in construction operations. We want a convincing answer on that matter before being prepared to leave it.
The second part of the debate must concern the procedure for those who genuninely are required to obtain certificates under the legislation. I am talking about genuine labour-only sub-contractors in the building industry, not in the furniture or oil industries. These people have been put into the most impossible state because, having been told with legislative authority that they must have certificates and that they would get certificates, the certificates have not been made available.
In many cases letters have been issued to successful applicants which the Revenue has asked them to take as surety for having no deductions made from their gross emoluments. That is, to say the least, illegal, because the legislation states that any contractor who pays a subcontractor gross when that sub-contractor is not in possession of a certificate is committing an offence. We have only the Revenue's say-so for the fact that such people will not be prosecuted. That was a slipshod piece of administration for which the Government should apologise to the House and to the sub-contractors concerned.
Still the certificates are not to hand. Still there is an endless queue of people waiting for their certificates. A Mr. Scaffell was told that he would get his certificate, but it never came. He then received a letter from the Revenue, which authorised him to carry on in business without deduction until 5th July 1977. On 11th July he wrote to his inspector stating that he still had not had a certificate although he was allegedly authorised and that his letter of authorisation had already run out.
How can the scheme be administered so badly? How is it that these people, who do not have recourse to high-powered legal and accountancy advice, can be treated as the Revenue has been treating them? Either they are eligible for a certificate or they are not, in which case they should not be told that they will get one.
That is the sort of abuse that the Government, in their lax way, have heaped upon the indecency of the whole scheme. New Clause 23 is designed to ensure that if no certificate is received within 30 days it shall be deemed that the sub-contractor is authorised to trade without deduction— it is not at all a bad idea— in order to smarten up the Revenue's administration.
One of the worse defects in the scheme lies in appeals. New Clause 24 seeks to remove the inability of the commissioners to hear appeals where the ground for refusal of a certificate is that the applicant's tax history is inadequate. That is what the Financial Secretary calls the concent of the good taxpayer, which he has personally, and on his own authority, introduced into our law and into our practice. It is the idea that if a man is not a good taxpayer certain fundamental rights can be denied to him and certain penalties heaped upon him.
These appalling and autocratic powers are administered by the tax inspectors without appeal. A person who has not received his certificate has no way that he can appeal except to the commissioners, and the commissioners are debarred from hearing the case if the inspector so much as hints that the reason for refusal is that the tax history is not entirely satisfactory.
The clause seeks to give the commissioners the power to cross-examine the tax inspector on the reason for the tax history being found to be unsatisfactory and to find that maybe the inspector has been unfair or harsh and that his ground for saying that the tax history of an applicant is not satisfactory can be faulted, which is not the case at present. That would remedy the worst part of the blemish against human rights that is contained in this legislation.
Surely the least that the right hon. Gentleman can do is to accept the principle of the clause. It may not be perfectly drafted. I have never claimed that anything I have ever drafted is perfect, except when I have drafted to leave out whole clauses. That is when my drafting is at its best. However, I am not having the argument from the right hon. Gentleman that the drafting of any of the clauses is inadequate. These are serious grievances that are felt by the citizenry about the Government's taxation legislation.
The opportunity for the grievances to be put right is on Report.
Each one of the points that I have put forward is valid, having come to the notice of myself and my right hon. and hon. Friends. It is up to the Government to respond to each one. I should not be against advising my hon. Friends to vote for all four of the new clauses, but it may be that in order to save time it will be better to choose the clause to which the Financial Secretary responds least satisfactorily and to vote upon that. 1 assure him that we shall not leave this issue without a vote unless he is prepared to concede the points that I have just made.

Mr. Graham Page: I hope that the Government will accept New Clause 22, which clears up a difficult issue. It concerns those who are not commonly known as contractors, those who do not carry out constructional operations but attend to provide a supplement to a building, such as floor covering and the installation of manufactured articles after the house, factory or office has been built.
This is not a fanciful point. I understand that it has been decided by the Inland Revenue that covering a floor with a carpet, linoleum tiles or whatever it might be is a constructional operation and attracts the need for a 714 certificate if the work is carried out by a subcontractor. All that we are asking for in the clause is to clear up the situation. I am sure that what has happened was never intended when the schedule to the Finance (No. 2) Act 1975 was drafted.
Even more important is New Clause 24. It came as a great shock to most of us that there had crept into Section 70(6) of the 1975 Act the exclusion of any appeal from this quasi-judicial act of the inspector. Inspectors were deciding how these conditions should be applied. They were deciding how, in any particular circumstance, the conditions should be construed and whether the poor unfortunate sub-contractor should be deprived of his certificate if they thought that a condition had been breached.
We raised this matter in a previous debate on this subject, and it appeared from cases that were cited that even the inspectors of taxes themselves thought that there was a right of appeal. They

had encouraged some taxpayers to appeal when there was no appeal available to them under the Act. If it was thought by the inspectors to be right that the taxpayer should have a right of appeal but it was found that for some reason the Act excluded that right, let us remedy that defect now.
I wonder whether there is any provision in any other legislation of this sort by which the taxpayer has no right of appeal from an administrative decision by someone at the level of inspector of taxes. It is an administrative decision, but it is a quasi-judicial decision and there should be a right of appeal. I hope that the Government will be prepared to put the matter right by accepting New Clause 24.

Mr. Ian Gow: Constantly when we have debates on economic policy the Chancellor of the Exchequer tells us that he is legislating for what he describes as ordinary working people. Those words fall readily from the Chancellor's lips. Yet when we come to examine some of the legislation that is brought before the House by the Treasury Bench we find that it operates in the most vicious way against precisely the people of whom the right hon. Gentleman claims to be the champion. That is why it falls tonight, as it often has in the past, to my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) to be the champion of ordinary working people. We have come to learn that it is my hon. Friend who is proving that it is the Tory Party that is the people's party— the party of the masses.
We have seen all the way through this 714 legislation that there is a vicious, cruel result which falls upon the small sub-contractor in the building industry. These clauses seek to redress some of the worst injustices of the 1975 (No. 2) Act. One of the most disquieting features of this legislation, which the clauses go some way to alleviate, is the way in which, when a Member of the House appeals to the Treasury on behalf of a constituent and points out the evils that flow from this legislation, it is possible to have the damage put right. But what about constituents who do not approach their Member of Parliament?
11.0 p.m.
I want to give three examples to the House. A constituent of mine was refused


a 714 certificate because he had grown a moustache. That absurdity was drawn to the attention of the Minister and, to his credit, it was put right. There was another appalling occasion when a constituent who had been unemployed for six months in the two years before he applied for a certificate was denied it because of his misfortune. Since 28th February 1974 many sub-contractors in the building industry have suffered that misfortune. Under the 1975 Act, an applicant who has suffered this misfortune is to be denied a certificate. I pay tribute to the Financial Secretary, who rightly decided that it was wrong and directed the inspector of taxes to issue the certificate which he had previously refused to issue.

Mr. John Ryman: I have only just come into the Chamber. Can the hon. Member explain the relevance of a moustache to this matter?

Mr. Gow: I shall not be drawn by that question. I shall explain to the hon. Member later. We want to get on with the debate.
Another of my constituents, a small builder, recently purchased from the Tory-controlled Eastbourne Council the council house in which he was living. He applied for a 714 certificate and it was refused. He wrote to me. I received a letter in response to one which I wrote to the inspector of taxes. It was dated 4th July and it stated:
I am prepared to immediately consider his current records which should presumably run from March 1977 and if these show that having been advised of his deficiencies in this direction in the past, he has now completely remedied the situation, I shall be only too pleased to look into the possibility of a new style certificate.
If it had not been for a letter from a Member of Parliament to the inspector of taxes pointing out that the man's case should be reconsidered, he would have been precluded from taking up employment.
First, the Financial Secretary should accept the clauses. Secondly, he must issue new instructions to inspectors of taxes so that not only do those who ask their MPs to take up their cases receive justice but that the right to work is given to the thousands who have been denied certificates.
The Financial Secretary stonewalls the subject every time it is raised, because he

has been given a Treasury brief. Perhaps I can commend to him a high and rare political virtue. He should be prepared to say that the Government's drafting of the 1975 Act was grievously wrong. The Government should have the courage to come here and adopt the philosophy of my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph), because they have sinned and they should put it right.

Mr. David Mitchell: We are talking about an industry in which there are always firms going bust and new firms starting. That is the way of life among small businesses. It is true that today many more small businesses in the building industry are going bust under the pressures of less construction work, more activity by direct labour departments, shortage of finance, the problems of employment protection and all the other things, of which my hon. Friends are only too painfully aware, which press on the small business. As a result of the pattern of life in the small business world and the building industry, in which people go bust and different firms start, that is the way of things I hope that the Financial Secretary will accept that this pattern exists.
What is happening today is that businesses are going bust but others are not starting. That is one reason why the unemployment figures are going up and up. Whether or not they will reach 2 million is something about which Ministers, one understands, are guessing. The new jobs that start in the construction industry are jobs where very often someone is starting in business for the first time and does not, therefore, have the track record which he is required to have in order to obtain a 714 certificate. But without the certificate, effectively he cannot start. It is a chicken-and-egg argument.
I have here a letter from a constituent of mine who lives near Highclere. He is a building contractor whose son has just started up in business. He wants to start a business making a particular form of concrete product. He tells me that everything seems to be in order to start and that his son has applied for his income tax exemption certificate from the Inland Revenue, as that is necessary because he will be selling to building contractors as well as to private individuals.
The son wrote on 25th April this year seeking his certificate so that he could start the business. He did not get a reply until 6th July. I do not know how anyone, after gathering together and laying out the money required to start a business, can be expected to sit and wait from April to July before he gets his licence to work. But then what comes?
He is told "I am sorry, you cannot have a licence to work because you have no track record."
That is just not good enough. We have a situation in which unemployment is rising because of the natural death of some businesses, and there is the man sitting on the Government Front Bench who is preventing the birth of new businesses. His hon. Friends below the Gangway are worried about the level of unemployment rising, as are Opposition Members. I ask him to accept the new clause so that he can help to save at least some of these firms.
I give one other example. As a direct result of what the Financial Secretary has been doing and the way in which he has been enforcing the legislation, another person, who is not a constituent of mine and who must remain nameless, has decided that, instead of setting up a proper business and doing things in the way in which he should, he will go moonlighting and pay no tax at all. He is moonlighting in the private sector where no certificate is involved.
The Financial Secretary has stopped up one hole, opened others and made some people into crooks. That is a stupid way in which to behave.

Mr. Robert Sheldon: We return again to the question of 714 certificates. I note the interest in the House about this matter. During the period over which we have discussed these problems, I have attempted to show the way in which people have been successfully coming forward to obtain certificates. Despite the excessive gloom that usually accompanies these debates, I have to record that the figures have been increasing in the way that was expected and stated by myself over the past months.
These are the latest figures. Out of 344,000 applications received, 281,000 have now been approved. The hon. Member for Cirencester and Tewkesbury (Mr.

Ridley) did not expect anything like that. He will recall his extreme opposition on this problem and describing it as one of the greatest administrative disasters to have befallen the present Government. However, he must accept that these figures are nothing like the situation he foresaw only a few months ago.
We are, however, faced with dealing with those who have been refused, perhaps because they have decided not to put their tax affairs in order in the way that I indicated, because their returns are still outstanding and awaiting such changes of attitude as may be required on their part, or because technical details are yet to be cleared up.
The large number of people who now have certificates and are working happily is an illustration of the way in which we have succeeded in overcoming some of the problems that the previous Government attempted but failed to deal with and which this Government have attempted to put right.
The new clauses view these matters from a fresh angle. New Clause 22 seeks to remove certain operations from the tax deduction scheme. It concerns finishing operations. I do not say that the way in which the legislation is set out and the categories of work which are subject to the tax deduction scheme should remain unchanged for all time.
I note the point of the right hon. Member for Crosby (Mr. Page). After the scheme has had time to prove itself, we shall want to consider whether those categories should be retained for the indefinite future. As regards finishing operations, the same position existed under the 1971 scheme. The wording was imported from that scheme. Perhaps the hon. Member for Cirencester and Tewkesbury violently disagreed with his Government on that occasion, but I cannot recall his having made then the case he made today.

Mr. Ridley: Why did the right hon. Gentleman tell the Standing Committee in July 1975 that the scheme was to apply only to persons involved in construction operations? I am asking him to stick to his assurance, but he cannot do that and persist in the argument he is advancing.

Mr. Sheldon: Construction operations in this scheme cover the whole range


dealt with by the previous Conservative Government. The wording in the new legislation was imported from the Conservative measure.

Mr. Graham Page: It is the recent interpretation of "construction operations" that we complain about. When those measures were introduced, it was not contemplated that people who lay floors, for example, would be included.

Mr. Sheldon: The categories of work now in the scheme should not be regarded as being there for all time. When the scheme has been operating for a long time, we can see whether some categories might be removed from it.
New Clause 25 deals with North Sea divers. The problems that the hon. Member for Cirencester and Tewkesbury foresees do not apply. The drilling for or extraction of oil or natural gas is already excluded from the deduction scheme under Schedule 13 to the Finance (No. 2) Act 1975.
New Clause 24 seeks to allow the appeal Commissioners to overrule the inspector where there is a difference of view. Perhaps I can outline the facts again, since the House may have overlooked them with the passage of time. When someone applies for a 714 certifi-cate—

11.15 p.m.

Mr. Ridley: The Oil Taxation Office has claimed that all the companies working in the North Sea are caught, and they have accepted that. Is the Minister now saying that he will tell the tax office— the name of the tax inspector is Hennessey, at City 12— that he was wrong to include the oil companies and that they are excluded from the legislation? That will make a great difference to the work of the Revenue. The Minister seems to have been wrongly briefed, because the companies are being included in the legislation at present. I have given him the reference. Will he now undertake that he will stick to what he has said?

Mr. Sheldon: Under Schedule 13 to the Finance (No. 2) Act 1975, the drilling for and extraction of oil and natural gas are already excluded from the deduction system. If the hon. Gentleman has in mind any particular case which he would

like me to go into further, I shall be happy to do so.
If someone applying for a 714 certificate satisfies the conditions, the certificate is granted. If his tax performance over the previous three years has not been satisfactory, that condition may be disregarded by the inspector of taxes, in which case the certificate will be granted. If the application is not in order and the certificate is not given, the applicant may appeal to the general commissioners. If they agree with the Revenue the appeal will be rejected, and if they disagree the certificate will be granted.
New Clause 24 is an attempt to allow the appeal commissioners completely to overrule the inspector on a question of discretion, to give them the discretion to overlook a failure to carry out a basic tax obligation. That would cause inconsistency. The commissioners are lay people, and allowing them to forgive wrongs and grant a certificate would lead to an inconsistency of decision which we are able to avoid in the case of the discretion given to the tax inspector. This suggestion is not the way to proceed.

Mr. Graham Page: I cannot see how the proviso at the end of Section 70 (6) can be interpreted as the Minister says. If there is a dispute about whether a condition has been satisfied, under that wording the general commissioners, or the special commissioners, are excluded from considering whether, as a fact and not as a discretion, that condition has been satisfied.

Mr. Sheldon: If the commissioners disagree with the Inland Revenue on questions of fact, they are entitled to put their view and the appeal may go in favour of the applicant. We are talking about the inspector's discretion when it is agreed that a person has done something wrong. We could not allow the procedure suggested in the new clause to be put into effect.

Mr. David Mitchell: What will be the situation of the man who is at fault because he has not been in business before?

Mr. Sheldon: A person does not need to have been in business before, otherwise the argument would be circular—he had not been in business before and, therefore, he could not go into business. As long as a man has a tax record, whether


as an employee or as self-employed in another area, that is enough for the tax inspector to provide him with a certificate.
The requirement that the contractor should inspect the certificate is basic to the operation of the scheme. New Clause 23 requires the contractor only to get verification from the tax inspector. That would wreck the scheme. It suggests that the contractor should write to the tax inspector asking him to verify that the certificate held by a person is in order. A great deal of checking would have to be done, and the requirement for letters to be dealt with within 30 days places the whole burden on the tax inspector. It would bring to the system the chaos that the hon. Member for Cirencester and Tewkesbury has always claimed would result from it.
I agree with what the hon. Member for Basingstoke (Mr. Mitchell) said about the self-employed. It is no part of this scheme to diminish their ability to carry on with their work. The figures I have quoted show that large numbers of them have obtained certificates and are doing their work as well as ever. No self-employed person would say that his operations depend on the possibility of being able to avoid the tax that so many others rightly pay. Those who say that should not be defended by the sort of legislation to which the Opposition's proposals would give rise.

Mr. Ridley: With the leave of the House, may I reply briefly to the debate? A packed and tense House has been attending on the Financial Secretary's every word because feelings are running high, as the size of the audience at this hour on a Thursday night will demonstrate.
The Financial Secretary dismissed as unimportant the fact that 50,000 people had been put out of work by the operation of these certificates. He claimed the fact that 344,000 had applied for them as a justification when 50,000 people have been refused and are presumably now on the dole queue.
An important concession has been obtained. The right hon. Gentleman admitted that he has been forcing the oil

industry to operate the scheme when it is excluded for the legislation. I intend to inform the oil industry that it can rely upon the right hon. Gentleman's word and stop operating the scheme. I can quote chapter and verse of what the Financial Secretary said. This is of great importance for the development of North Sea resources, and we are grateful to the right hon. Gentleman for admitting that the Inland Revenue has been operating the scheme illegally in the North Sea.
The important point was the one pressed by my right hon. Friend the Member for Crosby (Mr. Page)— the question of appeal. The Financial Secretary told us that it would be quite wrong to allow the tax inspector's discretion to be over-ruled by the commissioners and that the giving of such power to the commissioners could not be contemplated. But what on earth are the commissioners for if they are not needed to fight for the taxpayer when the tax inspector makes allegations against him? That is at the heart and nature of the functions of the commissioners. The right hon. Gentleman has admitted that he is denying that very appeal to an impartial authority which goes right throughout the taxation which the individual suffers. For that reason, I invite my right hon. Friends to support New Clause 24.

On New Clause 22, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 24

SUB-CONTRACTORS IN THE BUILDING INDUSTRY

'The power of the General or Special Commissioners hearing an appeal under subsection (6) of section 70 of the Finance (No. 2) Act 1975 shall include power to review a decision of the Board regarding the treatment of any condition as being satisfied, and accordingly the words in the said subsection "other than a decision that an individual, a company, or a firm is or is not to be treated as satisfying a condition set out in any part of Schedule 12 to this Act." shall be omitted.'.—[Mr. Ridley.]

Brought up, and read for the First time.

Motion made, That the clause be read a Second time.—[Mr. Ridley.]

Question put, That the clause be read a Second time—

Division No. 207]
AYES
(11.26 p.m.


Adley, Robert
Gorst, John
Newton, Tony


Aitken, Jonathan
Gow, Ian (Eastbourne)
Normanton, Tom


Alison, Michael
Grant, Anthony (Harrow C)
Nolt, John


Arnold, Tom
Hamilton, Michael (Salisbury)
Onslow, Cranley


Atkins, Rt Hon H. (Spelthorne)
Hampson, Dr Keith
Oppenheim, Mrs Sally


Awdry, Daniel
Hannam, John
Page, John (Harrow West)


Baker, Kenneth
Harrison, Col Sir Harwood (Eye)
Page, Rt Hon R. Graham (Crosby


Banks, Robert
Haselhurst, Alan
Page, Richard (Workington)


Bennett, Dr Reginald (Farenam)
Hawkins, Paul
Patlie, Geoffrey


Berry, Hon Anthony
Hayhoe, Barney
Powell, Rt Hon J. Enoch


Bitten, John
Henderson, Douglas
Price, David (Easlleigh)


Biggs-Davlson, John
Heseltine, Michael
Prior, Rt Hon James


Blaker, Peter
Hicks, Robert
Pym, Rt Hon Francis


Body, Richard
Hlggins, Terence L.
Rawlinson, Rt Hon Sir Peter


Boscawen, Hon Robert
Hodgson, Robin
Rees, Peter (Dover amp; Deal)


Botlomley, Peter
Holland, Philip
Rhodes James, R.


Bowden, A. (Brighton, Kemptown)
Hordern, Peter
Rhys Williams, Sir Brandon


Boyson, Dr Rhodes (Brent)
Howe, Rt Hon Sir Geoffrey
Ridley, Hon Nicholas


Brlttan, Leon
Howell, David (Gulldford)
Ridsdale, Julian


Brocklebank-Fowler, C.
Hunt, David (Wirral)
Roberts, Michael (Cardiff NW)


Brooke, Peier
Hunt, John (Bromley)
Roberts, Wyn (Conway)


Brotherton, Michael
Hurd, Douglas
Sainsbury, Tim


Brown, Sir Edward (Bath)
Hutchison, Michael Clark
Scolt-Hopkins, James


Bryan, Sir Paul
James, David
Shaw, Giles (Pudsey)


Buck, Antony
Jenkin, Rl Hon P. (Wanst'd amp; W'df'd)
Shelton, William (Streatham)


Budgen, Nick
Johnson Smith, G. (E Grinstead)
Shepherd, Colin


Bulmer, Esmond
Jopllng Michael
Shersby, Michael


Burden, F. A.
Joseph, Rt Hon Sir Keith
Silvester, Fred


Butler, Adam (Bosworth)
Kaberry, Sir Donald
Sims, Roger


Carlisle, Mark
Kershaw, Anthony
Sinclair, Sir George


Chalker, Mrs Lynda
Klmball, Marcus
Srnilti, Dudley (Warwick)


Channon, Paul
King, Evelyn (South Dorset)
Smith, Timolhy John (Ashfleld)


Churchill, W. S.
Kitson, Sir Timothy
Speed, Keith


Clark, Alan (Plymouth, Sutlon)
Knox, David
Spence, John


Clark, William (Croydon S)
Lamont, Norman
Spicer, Jim (W Dorset)


Clarke, Kenneth (Rusfrcllffe)
Lawson, Nigel
Spicer, Michael (S Worcester)


Clegg, Walter
Le Marchant, Spencer
Sproat, lain


Cooke, Robert (Bristol W)
Lester, Jim (Beeston)
Stainlon, Keith


Cope, John
Lloyd, Ian
Stanley, John


Costaln, A. P.
Loveridge, John
Stewart, Rt Hon Donald


Crltchley, Julian
Luce, Richard
Stewart, Ian (Hitchin)


Crouch, David
McCrindle, Robert
Stokes, John


Dean, Paul (N Somerset)
Macfarlane, Neil
Stradling Thomas, J.


Dodsworth, Geoffrey
MacGregor, John
Tapseli, Peter


Drayson, Bumaby
MacKay, Andrew James
Taylor' Rt (Croydon NW)


du Cann, Rt Hon Edward
Macmillan, Rt Hon M. (Farnham)
Tebbit, Norman


Dykes, Hugh
McNair-Wllson, M. (Newbury)
Temple-Morris, Peter


Eden, Rt Hon Sir John.
Thatcher, Rt Hon Margaret
Madel, David


Edwards, Nicholas (Pembroke)
Marshall, Michael (Arundel)
Thomas, Rt Hon P (Hendon S)


Elliott, Sir William
Mates, Michael
Van Straubenzee, W. R


Emery, Peter
Mayhew, Patrick
Vaughan, Dr Gerard


Eyre, Regianly
Meyer, Sir Anthony
Wakeham,Jothn


Fairbairn, Nicholas
Miller, Hal (Bromsgrove)
Walder,David (Clitheroe)


Fell, Anthony
Miscampbell, Norman
Wall Pafrirk


Fisher, Sir Nigel
Mitchell, David (Baslngstoke)
Warren, Kenneth


Fletcher, Alex (Edinburgh N)
Moate, Roger
Weatherill, Bernard


Fletcher-Cooke, Charles
Montgomery, Fergus



Forman, Nigel
Moore, John (Croydon C)
W9IIS, Jwirn


Fowler, Norman (Sutton C'f'd)
More, Jasper (Ludlow)
Wigley, Dafydd


Fox, Marcus
Morgan-Giles, Rear-Admiral
Young, Sir G. (Ealing, Acton)


Gardiner, George (Relgate)
Morris, Michael (Northampton S)



Gilmour, Rt Hon Sir Ian (Chesham)
Morrison, Charles (Devizes)
TELLERS FOR THE AYES:


Goodhart, Philip
Neave, Alrey
Mr. Peter Morrison and


Goodhew, Victor
Nelson, Anthony
Mr.Carol Mather.


Goodlad, Alaslalr
Neubert, Michael





NOES


Abse, Leo
Benn, Rl Hon Anthony Wedgwood
Brown, Ronald (Hackney S)


Anderson, Donald
Bennett, Andrew (Stockport N)
Callaghan, Jim (Mlddlelon amp; P)


Archer, Rt Hon Peter
Bldwell, Sydney
Cant, R. B.


Armstrong, Ernest
Bishop, Rt Hon Edward
Carter, Ray


Ashton, Joe
Blenkinsop, Arthur
Carlwrlght, John


Atkinson, Norman
Boardman, H.
Clemltson, Ivor


Bagler, Gordon A. T.
Booth, Rt Hon Albert
Cocks, Rt Hon Michael


Barnett, Guy (Greenwich)
Boothroyd, Miss Betty
Cohen, Stanley


Barnett, Rt Hon Joel (Heywood)
Bottomley, Rt Hon Arthur
Coleman, Donald


Bates, Alf
Brown, Hugh D. (Provan)
Concannon, J. D.


Bean, R. E.
Brown, Robert C. (Newcastle W)
Conlan, Bernard

The House divided: Ayes 189, Noes 213

Cook, Robin F. (Edln C)
Janner, Grevllle
Roberts, Albert (Normanto


Corbett, Robin
Jay, Rt Hon Douglas
Roberts, Gwilym (Cannock)


Cowans, Harry
Jenkins, Hugh (Putney)
Robinson, G-eoffrey


Cox, Thomas (Tooting)
John, Brynmor
Roderick, Caerwyn


Cronln, John
Johnson, James (Hull West)
Rodgers, George (Chorley)


Crowttier, Stan (Rolherham)
Jones, Alec (Rhondda)
Rodgers, Rt Hon William (stockton)


Cryer, Bob
Jones, Dan (Burnley)
Rooker, J. W.


Cunningham, G. (Islington 5)
Kaufman, Gerald
Roper, John


Cunningham, Dr J. (Whileh)
kefley, Richard
Rose, Paul B.


Davidson, Arthur
Kerr, Russell
Rowlands, Ted


Davies, Bryan (Enfleld N)
Kllroy-Silk, Robert
Ryman, John


Oavles, Denzil O-lanelli)
Kinnock, Neil
Sedgemore, Brian


Davies, Ifor (Gower)
Lomborn, Harry
Shaw, Arnold (llford South)


Davis, Clinton (Hackney C)
Lamond, James
Sheldon, Rt Hon Robert


Deakins, Eric
Latham, Arthur (Paddlngton)
Shore, Rt Hon Peter


Dean, Joseph (Leeds West)
Leadbitter, Ted
Silkin, Rt Hon John (Deptford)


Dell, Rt Hon Edmund
Lestor, Miss Joan (Eton amp; Slough)
Sllkin, Rt Hon S. C. (Dulwich)


Dormand, J. D.
Lomas, Kenneth
Silverman, Julius


Douglas-Mann, Bruce
Loyden, Eddie
Skinner, Dennis


Duffy, A. E. F.
Luard, Evan
Smith, John (N Lanarkshire)


Dunwoody, Mrs Gwyneth
Lyon, Alexander (York)
Snape, Peter


Eadle, Alex
Lyons, Edward (Bradford W)
Spearing, Nigel


Edge, Geoff
McDonald, Dr Oonagh
Spriggs, Leslie


Ellis, John (Brlgg amp; Scun)
MacFarquhar, Roderick
Slallard, A. W.


Ellis, Tom (Wrexham)
McGuire, Michael (Ince)
Stewart, Rt Hon M. (Fulham)


English, Michael
MacKenzie, Rt Hon Gregor
Stoddart, David


Ennals, David
Maclemian, Robert
Stott, Roger


Evans, Fred (Caerphllly)
McNamara, Kevin
Strang, Gavin


Evans, loan (Aberdare)
Madden, Max
Strauss, Rt Hon G. R.


Evans, John (Newton)
Magee, Bryan
Summerskill, Hon Dr Shirley


Faulds, Andrew
Mahon, Simon
Taylor, Mrs Ann (Bolton W)


Fernyhough, Rt Hon E.
Mallalieu, J. P. W.
Thomas, Mike (Newcastle E)


Fitch, Alan (Wlgan)
Marks, Kenneth
Thomas, Ron (Bristol NW]


Flannery, Martin
Maynard, Miss Joan
Thorne, Stan (Preston South)


Fletcher, Ted (Darlington)
Mendelson, John
TInn, James


Foot, Rt Hon Michael
Mikardo, lan
Tomlinson, John


Forrester, John
Molloy, William
Torney, Tom


Fowler, Gerald (The Wreklfl)
Moonman, Eric
Varley, Rt Hon Eric G.


Fraser, John (Lambeth, N'w'd)
Morris, Alfred (Wythenshawe)
Wainwright, Edwin (Dearne V)


Freeson, Reginald
Morris, Charles R. (Openshaw)
Walker, Harold (Doncaster)


Garrett, John (Norwich S)
Moyle, Roland
Ward, Michael


George, Bruce
Mulley, Rt Hon Frederick
Watkins, David


Gilbert, Dr John
Murray, Rt Hon Ronald King
Watkinson, John


Gould, Bryan
Newens, Stanley
Wellbeloved, James


Grant, George (Morpeth)
Noble, Mike
White, Frank R. (Bury)


Grant, John (Islington C)
Oakes, Gordon
Whitehead, phillip


Grocott, Bruce
Ogden, Eric
Whiltlock, William


Hardy, Peter
O Halloran, michael
Williams, Rt Hon Alan (Swansea W)


Harrison, Rt Hon Walter
Orbach. Maurice
Williams, Alan Lee (Hornch'ch)


Hart, Rt Hon Judith
Or me, Rt Hon Stanley
Wilson, Rt Hon Sir Harold (Huyton)


Hattersley, Rt Hon Roy
Ovenden, John
Wilson, William (Coventry SE)


Hatton, Frank
Owen, Rt Hon. Dr David
Wise, Mrs Audrey


Hayman, Mrs Helene
Palmer, Arthur
Woodall, Alec


Healey, Rt Hon Denis
Park, George
Woof, Robert


Hooley, Frank
Parker, John
Wrigglesworth, lan


Horam, John
Parry, Robert
Young, David (Bolton E)


Hoyle, Doug (Nelson)
Pavitt, Laurie



Hughes, Rt Hon C. (Anglesey)
Prescott, John
TELLERS FOR THE NOES


Hughes, Roy (Newport)
Price, C. (Lewisham W)
Mr. Joseph Harper and


Irving, Rt Hon S. (Dartford)
Radice, Giles
Mr. Ted Graham.


Jackson, Colin (Brighouse)
Rees, Rt Hon Merlyn (Leeds S)



Jackson, Miss Margaret (Lincoln)
Richardson, Miss Jo

Question accordingly negatived

New Clause 38

DECREASE IN DEDUCTIONS TO BE MADE FROM PAYMENTS TO SUBCONTRA CTORS IN THE CONSTRUCTION INDUSTRY.

'Subsection (4) of section 69 of the Finance (No. 2) Act 1975 (which requires deductions to be made from payments to certain sub-contractors in the construction industry) shall have

effect in relation to payments made on or after lst September 1977 with the substitution for "35 per cent." of "33 per cent."'—[Sir G. Howe.]

Brought up, and read the First and Second time.

Amendments made to the proposed new clause: (a)leave out 1st September 'and insert 6th November'.

(b), leave out '33 per cent.' and insert 34 per cent.'.—[Mr. Joel Barnett.]

Clause, as amended, added to the Bill.

Clause 19

RATE OF ADVANCE CORPORATION TAX FOR FINANCIAL YEAR 1977

Amendment made, No. 96 in, page 13, line 20, leave out 'thirty-five sixty-fifths' and insert thirty-four sixty-sixths'— [Mr. Joel Barnett.]

Clause 20

CORPORATION TAX: SMALL COMPANIES

Mr. David Mitchell: I beg to move Amendment No. 12, in page 13, line 22, leave out '42' and insert 25'.

Mr. Deputy Speaker: With this we may take Amendment No. 13, in page 13, line 24, at end insert—
'(1A) Where in section 95(4) and (5) of the Finance Act 1972 provision is made for restricting the small company relief in respect of associated companies, such provision shall not reduce the total relief below the amount which would have applied if all the associated companies had been one company.'.

Mr. Mitchell: I trust that I shall have the opportunity of moving Amendment No. 13 formally at a later stage in order that we may have a vote upon it.
I should declare an interest which I contingently have in the debate. The purpose of the amendment is to help to create jobs. I admit that the amendment would be improved by the insertion of the words "trading company". If that is the Minister's objection, I am quite sure that the insertion could be made later.
The Minister is very much aware of, and he goes along with me concerning, the importance of the small business sector, but that sector needs to have two things if it is to succeed. It needs to have cash available for investment and it needs to have incentives. I am bound to tell the Minister that the Small Business Bureau, which has been conducting a survey on these matters, has come up with the lack of cash for small businesses as being one of the present largest single causes of lack of expansion and job creation.
Has the Minister had the opportunity of looking at the evidence given to the Wilson Committee which has been examining the whole question of the financing of businesses? If he has, and if he looks at the evidence given by the

Association of Independent Businesses, as it now calls itself, he will see that it has set out clearly the sequence of events which will follow during the life cycle of a small and growing company. The association's memorandum states that.
The initial source of finance for smaller businesses is that provided by the people actually managing them and by their friends".
It states that the next source is usually ploughed-back profits. It is from ploughed-back profits that the growth of this sector comes.
I should like to take the Minister through the argument. In order to grow, shall businesses, need to plough-back profits. They add to that with borrowing from their joint stock bank. At a time of inflation, every small business requires more money in order to have the same volume of turnover.
When we have inflation at 17 per cent.—it may be 20 per cent. by the end of the year—it means that substantial additional sums have to be ploughed into businesses in order to enable them simply to have the same volume of turnover. They will need more money for debtors, more money for pre-shipment finance and more money, if they are in the exporting world, for performance bonds, and the like.
11.45 p.m.
The Government have made the situation worse by the introduction of the 2 per cent. national insurance surcharge, the 2 per cent. increase in corporation tax for the small business from 40 per cent. to 42 per cent., and so on. Then the Government have sought to relieve the situation by introducing stock relief. I give them full credit for having sought to undo the damage which their policies have caused to the small business sector, but I ask the Minister to accept that there are disadvantages which come from the system of stock relief in the financing of a small business.
First, it helps the wealthier business and not the very small business which has not enough money to buy the stock that it wants. Secondly, it helps to create inefficiency. As the Minister will know, one of the criteria by which the efficiency of a business is judged is whether it has a quick stock turnover. A high stock ratio is a guide to a business which is less efficient.
The third and most important consideration is that stock relief is only a deferred liability. It is not an end to that liability. As such, the money which is invested in a company in the form of increased stock—very large sums are being built up in companies' balance sheets in this way—is not available for borrowing from the bank for the further growth of the business.
Any banker looking at the company's balance sheet and considering what is the collateral has to take into account what happens if the proprietor walks under a bus. The business runs into financial difficulties. Stock has to be sold off. With the reduction in stock, the tax has to be paid. Therefore, with stock relief there is not the increase in the collateral and in the borrowing ability of the company.
In its evidence to the Wilson Committee, the Smaller Business Association put this neatly. It said:
Few financial institutions will consider providing funds which put them in the position of financing a bigger proportion of assets than the entrepreneur himself.
In other words, the higher the entrepreneur's assets in a business, the bigger his ability to borrow and to finance the expansion of that business.
To the extent that the entrepreneur's funds are represented by an increase in stock against which there is a liability in the balance sheet, he is not able to borrow and the expansion of the business is restricted. However, if the Chancellor of the Exchequer will do away with all these reliefs and bring down the level of corporation tax, for every £1 that he leaves in lower tax with the smaller business, the business can borrow another £1 from the bank, so that £2 is available for its expansion. I put it to the Minister that this is a significant and important aspect which ought not to be overlooked. I imagine that the hon. Gentleman will be prepared to accept the point.
I draw attention to two other matters. First, the Government's various policies ranging from employment protection to the whole parameters of intervention in the area of business are piling up greater and greater disincentives to anyone to start or to expand a business. It is insufficiently appreciated that the higher the disincentives, the higher must be the

incentive to make it worth while for people to do it. There are, inextricably mixed and interwoven, the tax on the small business man for his company and the incentives to himself to expand the business.
Any small business man looking at his business today says "I have to pay corporation tax at 42 per cent. But if I plough back money into the business, I shall have to pay capital gains tax and I may have to pay a wealth tax and capital transfer tax." He will certainly expect to pay 30 per cent. on capital gains tax. The rough calculation that he makes on the back of an envelope will tell him that any profits he makes will be taxed at between 60 per cent. and 70 per cent., which is a massive disincentive against building up or expanding a business.
The Minister does not appear to be interested in the debate, since he is paying no attention and is chatting to his right hon. and hon. Friends. His hon. Friends below the Gangway are interested in unemployment and in people losing their jobs. It is the failure of the Government to do anything to make it worthwhile for companies to expand that has resulted in increasing unemployment. We see the level of unemployment going up week by week, month by month.
I estimate that before August is out we shall reach the alarming figure of 11 million unemployed. I do not think that Labour Members below the Gangway would like to take a bet on that. If they will not take up the bet, that is the Minister's answer. If they are not prepared to say that unemployment will not go beyond LI million by August, that is an indication of the Government's failure and the reason why they should accept the amendment. It will provide the opportunity to restore incentive to people to build up businesses and the opportunity to restore the finance with which to do it.
I have one final point to put to the Minister. In the corporate sector generally, one is rather inclined to be like those who work in local government and say "So what?" Sixty per cent. of the costs of any new office expenditure will be paid for by the Government." The Minister would be surprised at the extent to which savings could be made through a reduced rate of corporation tax. It would


reduce the incentive to spend money wastefully throughout the whole business sector.
I also hope that the Minister will be prepared to accept Amendment No. 13. If he does not, we shall certainly wish to press the matter. It is a straightforward technical matter concerning the relief for small businesses whose pre-tax profits are £40,000 or less and it concerns associated companies. If there are two companies the relief will be £20,000 for each, but if one company makes £5,000 profits and the other makes £25,000 profits the pair of companies does not get the relief that would go to a single company. In fact, they would lose considerably.
I think the Minister will discover, if he consults his advisers, that the Treasury's advice would be that the amendment should be accepted. There would be no harm in accepting it, and I look forward to hearing the hon. Gentleman say that he can do so.

Mr. John Wakeham: I support my hon. Friend the Member for Basingstoke (Mr. Mitchell) in Amendment No. 12 and Amendment No. 13, both of which are important for small businesses. I know that it is customary on all occasions when we are discussing small businesses for hon. Members on both sides of the House to say how important small businesses are, and, of course, I go along entirely with those sentiments.
However, I am one of those who do not believe that just because a business is small it should have special tax treatment for that reason alone. I believe that small businesses have certain advantages and certain disadvantages. Among the advantages of small businesses are that in many cases they have energetic managements, happy work forces and many other things that go towards making their operations a success.
On the other hand, many small businesses have severe disadvantages. Therefore, it is right for the Government to look at their legislation to see whether small businesses should be relieved of some of the disadvantages that bear unfairly on them. One disadvantage which by definition virtually all small businesses suffer is a shortage of capital. In these inflationary times, shortage of capital has

brought in its wake a number of tax disadvantages that the amendments attempt at some point to relieve.
Businesses with adequate working capital can get two tax advantages. One is an ability to make capital investments whenever necessary to get relief from corporation tax that they would otherwise have to pay. In my experience, very few small businesses are able to make such investments at will. Indeed, there is a good economic argument for saying that the quality of investment in many small companies is that much better because they do not have the ability to turn on the tap and make capital investments to defer a major tax liability which would otherwise arise. Nevertheless, we must face the fact that capital gives the larger businesses a tax advantage that is not enjoyed by the smaller businesses.
The second advantage is stock appreciation relief. Basically, the same arguments apply. A business which has the ability to borrow has the ability to stock up towards the end of its financial year and thereby defer corporation tax liability. That, too, is an advantage that capital gives to the larger businesses. Such an advantage is not available to the smaller businesses because they do not have the necessary capital.
Inflation is increasingly making a tax differential in favour of the bigger business which is denied to the smaller business. Therefore, there is a strong argument for the acceptance of Amendment No. 12. I suggest that in practice a 25 per cent. corporation tax liability that is paid is pro rata probably a higher rate than a 52 per cent. tax liability on a major company that is able to defer it. A reduction from 52 per cent. to 25 per cent. might seem substantial, but in practice I suggest that it is nowhere near as substantial as it might appear.
Amendment No. 13 seeks to correct a disadvantage applying to groups of small companies which are associated for corporation tax purposes. In many instances, when a group of companies is associated for corporation tax purposes the small business relief is divided among them, which can produce a most unfair—[Interruption.]

Mr. Deputy Speaker: Order. I am having difficulty in hearing what the hon. Gentleman is saying.

Mr. Wakeham: I do not know how much you have missed, Mr. Deputy Speaker. I hope I shall not have to go back and start again.

Mr. Deputy Speaker: I have the gist of the argument.

12 midnight

Mr. Wakeham: As a group of associated companies is not able to use the shortfall for corporation tax purposes, that not being allowed in one company against another, in many cases the group as a whole loses some of the relief that I think Parliament intended it should have as compared with a small business which is treated as one tax unit, and as one company.
In many instances, small business men have for various reasons to divide their businesses into several companies when they would not choose to do so. For example, a company dealing in an agency business selling different products might be required by the manufacturers to trade through separate companies. In no sense would that be done from the point of view of administration, tax advantage or anything of that sort. It would be done purely because the principals insisted that it should be done.
In many instances a small business finds it necessary to divide itself into separate companies to raise additional capital, either by way of loan or preference shares of some sort. That may happen when a person is prepared to invest in a business as long as he is financing only one section of it. That may be the only way in which the required investment is forthcoming.
In many instances—surely this will be welcomed on both sides of the House—small business men divide their businesses into several companies because that is a practical way of giving employee participation to someone, who might take a small stake in a company. In that way, there might be a separate unit in which the employee who is running that side of the business takes a share without necessarily being involved in the whole of the business.
At present, the arrangements for corporation tax for those small businesses are unfair because they are often denied small business relief which otherwise they

would have had. In practice, we know that if a small business man goes to expensive accountants and works these things out in advance, often by introducing participation agreements and the sharing of profits, these factors can to some extent be mitigated. However, I can see no advantage for these unnecessary complications being present in the small business man's life and, therefore, I warmly support my hon. Friend the Member for Basingstoke.

Mr. Denzil Davies: The hon. Member for Basingstoke (Mr. Mitchell) has moved Amendment No. 12 and spoken to Amendment No. 13. Amendment No. 12 seeks to reduce the tax on small profits —not necessarily small businesses—from 42 per cent. to 25 per cent. That is a quite substantial reduction. The cost of the amendment would be about £200 million in a full year. As I have said previously, it seems that that is not of great concern to the Opposition.
We are concerned with small profits, not necessarily small businesses. A large business may make a small profit. If that were so, it would get this benefit. Therein lies a difficulty. Some small companies may make large profits. In that event they would not benefit from the reduction. As a result of the difficulties caused by the introduction of the imputation system of corporation tax that the hon. Gentleman supported, it is necessary to include certain provisions in the Bill. If the hon. Gentleman's party had not mucked around with corporation tax, small businesses would be much better off under the system which applied until 1970 than under the present system.
It was because of that change, and because of the effect that it would have had on small close companies—this was discussed at length in the Select Committee on Corporation Tax—that the then Conservative Government introduced this special provision. It was a rough and ready provision to try to mitigate the damage that was being caused to small businesses by the change in the imputation system which the Tory Government put through, and which the hon. Gentleman supported. The hon. Gentleman should go away and read the Select Committee's Report on Corporation Tax. If he does that, he will see what the problem was.
Small private companies which do not want to distribute their profits in the way that public companies do were better off under the old system, where the rate was 40 per cent. It was by changing the imputation system that the Tory Government damaged small businesses, and they tried to mitigate that damage by introducing this so-called small business relief which the hon. Gentleman now wants to reduce to 25 per cent.
Whatever the problems of small businesses today—and I accept that they have problems—corporation tax is not one of them. When one takes into account the stock relief provisions and the generous allowance for capital investment, one realises that small companies —indeed, any companies—do not have a problem in relation to corporation tax, especially if they are seeking to plough back their profits for further investment. They may have difficulties with capital transfer tax—this is something that we have debated on many occasions—but corporation tax is the least of the problems of small companies. They have complete exemption if they plough back profits for the sake of developing the business.

Mr. David Mitchell: Can the hon. Gentleman explain why he has completely and directly contradicted the words of his right hon. Friend the Chief Secretary on this subject on 11th May 1976, at column 419? If the hon. Gentleman wishes me to read out the damaging phrase that his right hon. Friend used, I shall do so. Can he also say how many jobs would be created by ploughing £200 million more into the small business sector?

Mr. Davies: I never contradict my right hon. Friend. It is clear that the hon. Gentleman has misread what my right hon. Friend said, just as he has misunderstood so much of the tax system.
Partly because of the cost, and partly because of the generous way in which the Government have dealt with companies in the matter of corporation tax, there is no case, and the hon. Gentleman has not made one, for a reduction from 42 per cent to 25 per cent. in the rate of small profit relief for businesses.

Mr. John MacGregor: The hon. Gentleman made an

interesting comment. He said that small businesses might have problems in relation to capital transfer tax. May we take it that, while he is not sympathetic to the amendment, he has an open mind to look at the problem of capital transfer tax over the next year?

Mr. Davies: We have had the debate on capital transfer tax. We think that the relief that we have given is generous and solves the problems of small businesses. I concede that it is possible to put that kind of argument on CTT, but it is not possible to put any respectable argument in relation to the effect of corporation tax on small, or any other, businesses, and the hon. Gentleman knows it.
I turn now to Amendment No. 13, which I understand the hon. Gentleman intends to press to a Division. I have some sympathy with this amendment, because one of the problems of introducing a relief of this kind—I stress that it is a relief—is that it had to be introduced because of the damage that the imputation system introduced by the Tory Government would have caused to small companies. There are difficulties with groups of companies, because if we introduce a lower rate of corporation tax up to certain levels of profits companies will split their operations into groups and associated companies. The Americans found this to be a problem with different rates. In 1971 the Conservative Government had to introduce provisions to prevent avoidance, and in some cases this causes a problem for companies which do not want to split up, for tax and other reasons.
These amendments would be completely unworkable in practice. Without complicated legislation it is not possible to deal with the problem, and even then I do not think that the problem would be solved. I shall read to the House what the right hon. Member for Wanstead and Woodford (Mr. Jenkin) said in the Finance Bill Committee in 1972 about a similar amendment. He said:
I am sorry to have to disappoint the hon. Member, but I feel that I cannot advise the Committee to accept the amendment, if only because it would be unworkable in practice, whereas the scheme written into the Bill would be easily workable, though rough at the edges." —[Official Report, Standing Committee E, 26th June 1972; c. 1495–6.]


That was the answer to the problem then and it is the answer that I must give tonight. In practice it is not possible to introduce a workable scheme, for the same reason as the right hon. Member for Wanstead and Woodford gave.

Mr. David Howell: I recognise the Minister's argument about Amendment No. 12. It is perhaps fair to say that at midnight £200 million is a large sum to expect the Minister to give away. But I am sure that there are plenty of big spenders below the Gangway who would help the hon. Gentleman to dispose of such a sum.
If it were a question of thinking about people and the creation of jobs, there would be many worse ways than this to be found in the Government's existing programmes through which they pump vast sums of money into industry to create new jobs. But I recognise the point made by the Minister and it is reasonable at this stage in the debate.
The Minister is on weaker ground on Amendment No. 13. He has used fairly traditional arguments about why nothing can be done. He has claimed that the Government do nothing but think of small businesses and how to help them and create new jobs. With the rising tide of unemployment which hangs like a pall over the country, the Minister uses arguments which have been knocking around for many years.
The Minister has done justice to my hon. Friend the Member for Basingstoke (Mr. Mitchell) on the first amendment that we are discussing. I should have liked him to take a more positive approach to the second amendment in pursuing the growth of small businesses and the jobs that that would bring.

Mr. David Mitchell: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 13 in page 13, line 24, at end insert—
'(1 A) Where in section 95(4) and (5) of the Finance Act 1972 provision is made for restricting the small company relief in respect of associated companies, such provision shall not reduce the total relief below the amount which would have applied if all the associated companies had been one company.'.—[Mr. David Mitchell.]

Question put, That the amendment be made:—

The House proceeded to a division; but no Member being willing to act as Teller for the Ayes, Mr. DEPUTY SPEAKER declared that the Noes had it.

Question accordingly negatived.

Clause 21

RELIEF FOR INTEREST: LIMIT FOR 1977–78

12.15 a.m.

Mr. MacGregor: I beg to move Amendment No. 93, in page 14, line 5, at end insert—
'(2) In paragraph 4(1) of that Schedule, after paragraph (b) there shall be inserted the following additional paragraph—
or
(c) is at the time the interest is paid used as the residence of a divorced or separated spouse, who has borrowed additionally on the security of his main residence to provide for the other former or separate spouse, subject to total borrowing for this purpose or as part of the original mortgage not exceeding the annual limit."'.
It often seems to be my lot to have to move the last amendment on the various stages of Finance Bills. Tonight appears to be no exception.
Some of my hon. Friends have rather unkindly dubbed this the "second mortgages for second wives amendment". They might at least have added "second husbands" as well. However, the amendment is not like that. It is neither a libertarian's charter nor an incitement to use divorce to get tax relief on mortgage interest payments.
I shall explain the background to the amendment. I was browsing through various representations made to the Chancellor in relation to this year's Finance Bill when one particular proposal from the Law Society caught my eye. The Law Society was pointing out that one effect of the Finance Act 1974 in relation to relief for interest was that in some cases divorced or separated spouses seemed to be particularly disadvantaged.

Mr. Ridley: On a point of order, Mr. Deputy Speaker. Although I am sitting extremely close to my hon. Friend the Member for Norfolk, South (Mr. MacGregor), I am finding it very difficult to hear him because of the hubbub from the other end of the Chamber. Could


you possibly secure a certain amount of peace and quiet to enable me to hear my hon. Friend's words of wisdom?

Mr. Deputy Speaker: I appreciate the hon. Gentleman's point of order. It is a little disturbing when conversation goes on too loudly in the Chamber. I appeal to hon. Members to let us get rid of this final amendment tonight.

Mr. MacGregor: I am most grateful, Mr. Deputy Speaker, but I hope that we shall not "get rid" of it. I hope that we shall at least make some progress on it.

Mr. Deputy Speaker: Either way—accepted or rejected.

Mr. McGregor: The subsidence of the noise has made it unnecessary for me to shout down the ear of my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley).
The Law Society pointed out that, in the case of divorced or separated spouses, the use of lump sum awards in matrimonial financial proceedings was increasing. It pointed out that, as a result of this, it is often necessary, for divorced or separated husbands—or, indeed, wives—to seek to raise the sum awarded to his or her divorced or separated spouse by means of a mortgage on the former matrimonial home, which becomes his or her home after the divorce or separation. However, according to the Law Society, the problem is that if this is done the interest on such a mortgage will not qualify for income tax relief as it is not a loan for house purchase, improvement or development.
That representation caught my eye because I have been running into a number of such problems in my surgeries, and I have had one or two representations from outside my constituency in relation to some of the ways in which recent legislation on matrimonial settlements is working out. Let me give one or two brief examples. These circumstances apply particularly to people in their 40s, 50s and 60s. In one case a spouse found that as a result of the splitting of the assets of the family—in this case his only assets were matrimonial home—he was forced into a situation in which he would have had to sell the matrimonial home and neither party would have benefited.
In another case, a small farming business was having to be split up in order to meet the judgment of a matrimonial settlement.
I am not questioning the judgments. I say only that it should be possible for us to seek means by which a divorced or separated spouse might be able to raise proceeds in order to meet a judgment. In these circumstances, given that very often the spouse will have very few assets other than the matrimonial home, and probably only a small income, if it is necessary for him to do that by raising an additional mortgage it would surely be desirable. To enable the spouse to do that, we should perhaps look at the provisions of the 1974 Act in order to give him tax relief on the additional mortgage. It will be clear from the amendment that I am not trying to breach any of the conditions of the 1974 Act. I am not tonight suggesting that the total borrowing limit of £25,000 should be exceeded, although I maintain that in view of the rate of inflation the limit should now be raised.
I think that I have made the point simply and clearly. If the Minister can assure me that in all the circumstances I have outlined tax relief would be forthcoming for any additional mortgage raised on the former matrimonial home, that would fly in the face of the belief expressed by the Law Society but I should rest content. I am sure also that the Law Society would be much relieved. If, on the other hand, the Law Society is right in its fears about this matter, I hope that, since the matter is being pressed late in the proceedings on the Bill, the Financial Secretary will think about the problem with a view to sorting it out at a later stage.

Mr. Robert Sheldon: The amendment seeks to provide arrangements for second mortgages for separated wives. It seeks to provide for interest relief on any loan that is raised for a lump sum payment to a divorced or separated spouse.
There are a number of problems associated with the amendment. The drafting of it clearly fails to take account of the many complications, but I shall not go into that aspect. I understand the purpose of the amendment, and I shall direct my remarks at that.
There is no way to ensure that the money is spent in the way in which the hon. Member for Norfolk, South (Mr.


MacGregor) wishes. It is not easy to put the hon. Gentleman's intention into legislative form. Where the relief would be only on the borrowing for a home, there would be no way of undertaking that that money would be spent in that way. A control mechanism would not operate. Why should the loan qualify only if the money is borrowed against the security of the home? Why should it not operate against the security of shares or a bank loan? I am not sure whether what is intended is a minor change or whether there is a fundamental defect in the amendment. I am not clear about the hon. Gentleman's intention on that score.

Mr. MacGregor: Would there not be many circumstances—the two I had in mind were in point—in which there were no other assets than an owner-occupied house and it was necessary to raise money on it? The real purpose is to enable the court's judgment to be met. It must be for the courts to decide where the proceeds are put.

Mr. Sheldon: I understand, but in equity it is hard to see why a person who has a large house and wants to provide a home for his divorced or separated spouse should be better enabled to do so than a person with some of his money in shares or other property, or even a policy on which to raise a loan, and a house of a more modest size, on which less money would be raised.
I can, however, offer the hon. Gentleman some comfort. There are other ways of meeting some of these problems. Under the 1974 Finance Act a husband can buy a house, in addition to the one he has himself, for his ex-wife, and interest relief is allowed against the purchase of the new house. That allows two kinds of interest relief. If there is a legally enforceable income settlement, he would get tax relief on his annual payments and the wife could use the annual payment to pay the mortgage of the house on which she gets the relief.
There are other ways of ensuring this end. If the hon. Gentleman will discuss the matter with me, I think that I can show him a number of solutions without having to go into these complexities. Although I have an open mind about any

changes required to meet these ends, I believe that most of the points can be met in other ways without such complex legislation.

Mr. MacGregor: I am glad to hear that the Minister has an open mind. I shall seek further guidance in the light of his response with a view to bringing forward a similar amendment at a later stage. In the meantime, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Further consideration adjourned.—[Mr. Joel Barnett.]

Bill, as amended (in the Committee and in the Standing Committee), to be further considered upon Monday next.

DOUBLE TAXATION RELIEF

Resolved,
That an humble Address be presented to Her Majesty, praying that on the ratification by the Government of the Kingdom of the Netherlands of the Protocol set cut in the Schedule to the draft Order entitled the Double Taxation Relief (Taxes on Income) (Netherlands) Order 1977, which draft was laid before this House on 21st June, an Order may be made in the form of that draft.—[Mr. Coleman.]

To be presented by Privy Councillors or Members of Her Majesty's Household.

Resolved,
That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (Kenya) Order 1977 be made in the form of the draft laid before this House on 21st June.—[Mr. Coleman.]

To be presented by Privy Councillors or Members of Her Majesty's Household.

Resolved,
That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Shipping and Air Transport Profits) (Zaire) Order 1977 be made in the form of the draft laid before this House on 21st June.—[Mr. Coleman.]

To be presented by Privy Councillors or Members of Her Majesty's Household.

Resolved,
That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Air Transport Profits) (Ethiopia) Order 1977 be made in the form of the draft laid before this House on 21st June.—[Mr. Coleman.]

To be presented by Privy Councillors or Members of Her Majesty's Household.

Resolved,
That an humble Address be presented to Her Majesty, praying that on the ratification by the Government of Poland of the Convention set out in the Schedule to the draft Order entitled the Double Taxation Relief (Taxes on Income) (Poland) Order 1977, which draft was laid before this House on 21st June. an Order may be made in the form of that draft.—[Mr. Coleman.]

To be presented by Privy Councillors or Members of Her Majesty's Household.

HOUSE OF COMMONS (SERVICES)

Ordered,
That the Standing Order of 22nd November 1074 relating to the number of members of the Select Committee on House of Commons (Services) be amended by leaving out the word 'Eighteen' and inserting the word 'Nineteen'. —[Mr. Coleman.]

Ordered,
That Mr. Eric Ogden and Mr. Cecil Parkinson be added to the Select Committee on House of Commons (Services).—[Mr. Coleman.]

GEORGE HENRY INCE

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Coleman.]

12.28 a.m.

Mr. Ian Mikardo: This is the second time that I have used an Adjournment debate to bring to the attention of the House the long-drawn-out, strange and sad case of the conviction of George Henry Ince. The previous occasion was on 27th March 1975. Some of my hon. Friends and I had been banging away at the armour-plated obstinacy of the Home Office long before that.
Mr. Ince is the man who was charged by the Essex police with what came to be called the Barn murder. They built up a dossier against him, which looked absolutely conclusive and irrefutable. The major part of the evidence that they adduced was evidence of identification; it was overwhelming and unanswerable evidence of identification. The only thing wrong with it was that it was wrong, because it identified the wrong man.
Fortunately, Mr. Ince, by his energy and skill in defending himself, by his continuous passionate restatement of his innocence and by his good fortune in

establishing an alibi at the last minute, escaped conviction for the Barn murder, and a short while afterwards two men were arrested, charged and convicted of that murder.
The identification parade was among matters examined in a report by a distinguished officer of the Metropolitan Police—Commander Howells. That report made clear, as the Under-Secretary at the Home Office admitted in my last Adjournment debate, that the procedures during the identification parade were a gross violation of police rules and that all sorts of rules had been bent in all sorts of ways in order to get a conviction that was "phoney". The Essex police were determined to get a conviction by hook or by crook and they came very near to getting a conviction by crook.
In all this long argument with the Home Office, extending over several years, I have never said that George Ince is innocent of the crime for which he is serving a prison sentence. I do not know whether he is guilty. I am not a detective, a lawyer or a judge, and I do not presume to pronounce on such a matter. However, I have read every word of the proceedings and I say that, innocent or not, George Ince should certainly not have been convicted on the evidence adduced against him at the trial and subsequently in the appeal, because the overwhelming bulk of that evidence rested upon identification carried out a few days later in the same place by the officers who, it is now known, did a crooked identification in the case of the Barn murder.
That was evidence of witnesses whose credibility had been absolutely shattered. I do not believe that it was reasonable for the court, even with some warning given to it about the identification evidence, to ignore this lack of credibility of the people who had built up the case.
Whenever I have put these points to my right hon. Friend the Home Secretary, he has said—and has repeated in writing —that he is not a court of law or an appeal court against the Court of Appeal and that he cannot reopen the case unless he is given fresh evidence that was not available to the court or to the Court of Appeal. But my right hon. Friend's predecessor did not say that in the Confait case, which my hon. Friend the Member


for Lewisham, West (Mr. Price) repeatedly drew to the attention of the House.
On 8th January 1974 the then Home Secretary told the then hon. Member for Lewisham West, Mr. Carol Johnson, that he could reopen the Confait case only on fresh evidence or fresh facts relating to the issues. On 17th July that year the Home Secretary referred to the need for fresh evidence on the affair. On 1st August he said that the case could be reopened on the basis of cogent new factors—not, this time, fresh evidence. On 31st August, he referred to:
significant matters which appear to suggest that the jury were not presented with an accurate or adequate picture of what occurred.
That is a precise description of the presentation to the jury in the case of the Mountnessing robbery.
On 8th April 1976 the then Home Secretary said that he could reopen the case on some new evidence or other consideration of substance—that is, some consideration other than new evidence. Finally, also on 8th April 1976, answering a different parliamentary Question, he said, without mentioning evidence, that the case could be reopened on some new consideration of substance.
So, during this period of a year or more, the then Home Secretary was gradually liberalising the criteria under which he could order a fresh look at a case. The present Home Secretary, however, has done a total reversion, right back to before 1974, to a harder line—a very hard line indeed.
In a letter that the Home Secretary sent to me, however, he promised that if there were any fresh evidence he would look at it. There are two more pieces of fresh evidence. The first is the report of a second investigation into complaints against the conduct of the Essex police, this time carried out by Detective Chief Superintendent Sills of the West Yorkshire Constabulary. I do not know Mr. Sills, but I am told that he is a senior officer of high repute, is widely respected, and has a great record of service. Although the Home Secretary refuses to make Mr. Sills' report available to me or anyone else, I know what is in it. There have been leaks. Some extracts

from it were published this morning in The Guardian, in an article by Mr. Peter Chippendale.
I mention in passing that when Mr. Chippendale rang up the Chief Constable of Essex to check a point or two he was told that if his paper published anything about the Sills report he would be liable to very damaging consequences, whatever that may mean. I would have thought that that was by no means the best way to improve relations between the police and the public.
I am going to say something very blunt. If my hon. Friend the Minister of State says, in reply, that Mr. Chippendale's account is not correct. I am not going to believe him; nor is anyone else. I do not say that my hon. Friend is a liar, first, because that would be out of order. and, secondly, because it would be inconsistent with the deep regard and affection in which he knows I hold him.
What I am saying is that my experience of the behaviour of the Home Office with regard to investigations into the conduct of the police gives me confidence, and gives anybody else who has any experience in these matters confidence, in the belief that the Home Office's passion for preventing the public from knowing about the peccadilloes of the occasional police officer who is corrupt overrides every other consideration in its mind, to such an extent that it becomes—I am using tough words, but they derive from experience—unscrupulous in the use of the information available to it.
If my hon. Friend is going to say that the article is not true, let me bring out one point in the Sills report. Is he going to deny that a large number—nearly 100 —of prosecution documents found their way into the hands of the defence? Is he going to deny that some police officer or officers in Essex at about that time received a sum of rather more than £6,000? Is he going to deny that the Sills report says that it would be naive to imagine that there was no connection between those two occurrences? Will he deny that? I repeat: if he tries to discredit what has been written about the Sills report, I shall not believe him, nor will anyone else.
There is no time for me to do more than pick out one or two points that were


quoted in the article. It points out that the report states that
The excess of zeal by Essex police officers to pursue investigatory ends oblivious to the contradictory evidence was not in the best interests of such an investigation.
That is a nice, discreet, polite, diplomatic way of saying that the Essex police picked out the bits of evidence that suited them and ignored the bits that did not suit them—in other words, that they were not carrying out their duty of seeking the truth. What they were seeking to do, for the second time with the same man, was to get a conviction by hook or by crook, and again they have got one by crook.
This exposure of the lack of credibility of the people on whose word the prosecution case was built up must constitute new evidence for my hon. Friend to consider. But there is a second piece of evidence. A statement was made a few weeks ago by a man named Sims, who is serving a sentence for his part in the Mountnessing robbery, and who says, quite frankly, "I was involved in the robbery. I admit it. George Ince was not there and had nothing to do with it." He has nothing to gain by saying that. I sent that statement to the Home Secretary some weeks ago. As far as I know, not a finger has been lifted about it.
If my hon. Friend is to say to me, as I hope he is, that the Home Office will take steps to have Mr. Sims' statement investigated, I want to ask three short and quick questions. First, what has the Home Office been waiting for? Why has the statement not been investigated up to now?
Secondly, who is to do the examination? Is it to be the Essex police? If it is, that would he an invitation to Satan to rebuke sin, would it not? That would make the Home Office a laughing stock throughout the country.
Third, may I please have an assurance that no pressure will be put on Mr. Sims to go back on what he is saying? I think that, to make sure, I had better get a visiting order and go to see Mr. Sims myself and have a little chat with him.
I hope that after my hon. Friend has replied we shall not be in a position to think, as many people do—I am not alone in this—that the history of this case tends to show, or at least leaves open the suggestion, that the Department has throughout

been more interested in covering up some unpleasant features of the case than to do justice to a man who has suffered much wrong.
I hope that when my hon. Friend replies he will indicate some first steps to rectify that gross injustice.

12.37 a.m.

The Minister of State, Home Office (Mr. Brynmor John): The case of George Ince's conviction for the Mountnessing bullion robbery is one which, as my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) has said, has achieved a considerable amount of notoriety. I think it fair that I should remind the House that it occupied the time of the trial court for some 60 days and the Court of Appeal for six days. It has been the subject of a complaint under Section 49 of the Police Act 1964, which was investigated, as my hon. Friend says, by Chief Superintendent Ronald Sills. I shall say more about that at a later stage.
Nevertheless, there has been a continuing interest in the case, as the attendance for the debate shows, and it has been spearheaded, as my hon. Friend says, by himself. He has been extremely vigorous on behalf of his constituent. It has led, as he has said, to Press speculation and, in its turn, to the second Adjournment debate that my hon. Friend has sought on the subject.
I welcome that, not only as an opportunity of answering the genuine anxieties expressed by my hon. Friend but also to clear up certain misconceptions that arise, not only in this case but in other cases in which my right hon. Friend is involved.
It goes without saying that the proper forum for judging guilt or innocence is a court of law, particularly where, as in the case of serious crime, we have a jury system, which everyone values. Even if the convicted man, or others on his behalf, nourish the belief that he was wrongly convicted, that itself does not warrant the Home Secretary's interference. He is not appointed to take the place of a court, so that any material that was fully aired and determined by the court cannot be subject to a reference to the Court of Appeal. Consequently, the frequently criticised and often referred to identification parade in the Ince case,


which was dealt with very fully in the trial, is not a ground of fresh evidence.
The trial judge was most careful to sound warning about the matter, and the Court of Appeal confirmed not only the adequacy of the warning but the fact that it was the totality of the evidence upon which Mr. Ince was found guilty. As I said, on that matter alone, however disturbing my hon. Friend finds it, the Home Secretary could not intervene.
My right hon. Friend can refer a matter to the Court of Appeal under Section 17 of the Criminal Appeal Act 1967 if, upon new evidence or a new consideration, he considers it right to do so. Alternatively, he can recommend the exercise of the Royal Prerogative of Mercy if the evidence is not properly receivable by the court but is tested and undermines the conviction.
It is in this category of new evidence that the statement of Mr. Francis Sims falls and its potential value lies. Clearly, this raises new matters, which call for further investigation. My right hon. Friend has therefore decided to pass the statement to the police for investigation. This will be done immediately.
My hon. Friend asked three questions. I have answered one—the statement has been passed on. Secondly, I am authorised to say that the investigation will not be undertaken by the Essex police force but will be placed in the hands of an officer from another force. Thirdly, my hon. Friend raised the question of pressure being put on Mr. Sims in reference to his statement. If my hon. Friend is asking whether pressure will be put on Mr. Sims to withdraw his statement I can stay that none will be put on. Of course his evidence will be tested and all matters that are proper for my right hon. Friend to consider—not only whether he should refer it back to the Court of Appeal but whether he follows the other course that I have mentioned in this matter—will he tested. But no pressure will be placed upon Mr. Sims to change a story that he believes to be true.
If my hon. Friend wishes to have a pass to visit Mr. Sims and talk to him I shall be happy to try to facilitate it.

Mr. Mikardo: Thank you very much.

Mr. John: I now deal with the second limb of the speech of my hon. Friend—

the question of the Sills report. I am sorry that there is so much similarity in the names, but I shall not get them mixed up: My hon. Friend asked my right hon. Friend on an earlier occasion to see a copy of the report. The report takes the form of an investigation of complaints against policemen in the case—an investigation commissioned by the Chief Constable of the Essex police. The report was forwarded to the Director of Public Prosecutions and a copy was sent to my right hon. Friend because of its connection with the other matters concerning Mr. Ince.
The report is a private report and not a public one, and such reports have not been disclosed in the past, any more than police investigations have been published. My right hon. Friend does not feel able to depart from the normal practice, and does not feel able to publish this document, for the reasons set out in Home Office Circular 63/77, a copy of which is available in the Library. Basically this sets out some of the disadvantages, and potential disadvantages, of publishing the material in this case. I quote from one part of it. It says:
Many reports contain information which could certainly not be freely disclosed such as the names and addresses of witnesses or criminal records of named persons, as well as statements made to the police and facts disclosed in the course of investigation which may be prejudicial to named persons. Investigation of a complaint against the police follows in many respects the same lines as a criminal investigation and it is equally undesirable that any report of the investigation of a complaint should be published.
That certainly post-dates the Sills report, but these are mere reiterations of the principle that has always obtained and which, I believe, obtained in this case with equal validity.
The request made by my hon. Friend has been given a new twist by a report in The Guardian this morning purporting to give extracts from the Sills report. I understand that my hon. Friend has discounted in advance what I shall say. Nevertheless, because of the affection with which we regard each other I hope that he will listen carefully and sympathetically to what I shall say. I do not believe that I have a reputation for misleading the House or for trying in any way to bide behind a distortion of the facts in order to protect the Department or personal interests.
The major point in the article in The Guardian suggested that Mr. Sills had recommended Mr. Ince's release from prison pending further inquiries. This is a major point which, if true, would oblige my right hon. Friend to explain why he had not accepted such a recommendation and, indeed, why he gave the parliamentary Answer that he did to our mutual hon. Friend the Member for Paddington (Mr. Latham) on 20th May 1977. But it is not true. Mr. Sills made no such recommendation.
Clearly, someone has gone to a great deal of trouble to draw up the document from which the article in The Guardian is drawn. In view of recent events I hope that The Guardian has tried to check its information. I can only assume that the intention behind the article is to force publication of the real Sills report. As I have explained, my right hon. Friend has no such intention. He will not depart from the long-standing principle of the confidentiality of such reports.
I believe that it would be to the long-term detriment of people involved in these investigations if such reports were to be published. Even where there is a public inquiry it is often necessary to check with people who have given evidence as to whether they agree that the particular proposal should be published. I therefore say to my hon. Friend that it is clear from the article in The Guardian, as I read it, that whatever document The Guardian thinks it has seen, it is not the Sills report. The printed extracts bear no resemblance to the report that Mr. Sills submitted to the chief constable.
My hon. Friend has made a number of points, some of which have already been discussed between us and some of which I shall need to consider in the light of what he has said. I shall consider them and write to him.
My contention tonight is that the Home Office is not here to cover up or to hide behind a smoke-screen. But my right hon. Friend has limitations on his power. It is not merely discontent with a verdict which entitles him to intervene. If that were so, the independence of the judiciary and of our legal system might well be undermined. My right hon. Friend can

intervene only where there is some new consideration or new evidence of substance.
I believe that, at any rate potentially, Mr. Sims' statement falls within that category, which is why my right hon. Friend has passed it on and why the investigation will now take place. The investigation is designed merely to establish the truth of the matter. It is not designed to prejudge or to achieve a desired object. It will establish the truth so far as, in a complex case of this kind, that can be achieved.
The process of testing is necessary not only because the Court of Appeal can sometimes be rough on a Home Secretary who has made a premature referral but because such a referral can be prejudicial to the man himself. If there are matters that need clarification and there is a premature referral to the Court of Appeal, the court, examining only that evidence, may come to the conclusion that the appeal should be dismissed. That may lead to greater disillusion and greater unhappiness on the part of the accused person.
As soon as the investigation has been completed and checks have been made into the statement, we shall be in touch with my hon. Friend. I assure him that I take this case seriously. It is a case which, as he said, has caused a great many people a great deal of anxiety. But I am far from accepting my hon. Friend's strictures on my right hon. Friend or on the Home Office. I assure him that this investigation will be carried out with diligence and that he will be made aware as soon as the result is received by the Home Office.
With that assurance, I hope that the Ince case may be gone into yet again by my right hon. Friend and by the relevant authorities, so that we can see at least, if not total acceptance, a greater acceptance of the underlying basis of the case, because it is importance that justice should not only be done but should be seen to be done.

Question put and agreed to.

Adjourned accordingly at three minutes to One o'clock.